<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/
/ Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for use of Commission only (as permitted by Rule
14a-6(e)(2))
NICHOLS RESEARCH CORPORATION
(Name of Registrant as Specified in Its Charter)
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
__________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
__________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
__________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
__________________________________________________________________________
(5) Total fee paid:
__________________________________________________________________________
/ / Fee paid previously with preliminary materials.
<PAGE>
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
_________________________________________________________________________
(2) Form, Schedule or registration statement no.:
_________________________________________________________________________
(3) Filing party:
_________________________________________________________________________
(4) Date Filed:
_________________________________________________________________________
<PAGE>
NICHOLS RESEARCH CORPORATION
4040 Memorial Parkway, South
Post Office Box 400002
Huntsville, Alabama 35815-1502
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
January 8, 1998
TO THE SHAREHOLDERS OF NICHOLS RESEARCH CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Nichols Research Corporation (the "Company") will be held in the Company
Auditorium, Corporate Headquarters, 4040 Memorial Parkway, South,
Huntsville, Alabama, on January 8, 1998, at 5:00 p.m. local time for the
following purposes:
1. To elect twelve (12) Directors to the Board of Directors to
serve for the ensuing year and until their successors are duly elected
and qualified (designated as Proposal 1 in the accompanying Proxy
Statement).
2. To consider and vote to approve or disapprove the adoption
of the Nichols Research Corporation 1997 Stock Option Plan (designated
as Proposal 2 in the accompanying Proxy Statement).
3. To consider and vote on an amendment to the Company's
Certificate of Incorporation to increase the authorized shares of
common stock to 30,000,000 shares from 20,000,000 shares (designated
as Proposal 3 in the accompanying Proxy Statement).
4. To consider and vote to approve or disapprove the adoption
of the Nichols Research Corporation 1997 Stock Bonus Plan (designated
as Proposal 4 in the accompanying Proxy Statement).
5. To ratify the appointment by the Board of Directors of Ernst
& Young LLP as the Company's independent public accountants for the
current year (designated as Proposal 5 in the accompanying Proxy
Statement).
6. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The close of business on November 28, 1997, has been fixed as the
record date for determination of shareholders entitled to notice of and to
vote at the meeting.
<PAGE>
A copy of the Annual Report to Shareholders for the fiscal year ended
August 31, 1997, is enclosed.
By order of the Board of Directors,
Patsy L. Hattox
Secretary
Huntsville, Alabama
December 8, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN,
AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOU LATER ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOU
MAY WITHDRAW YOUR PROXY AND SO VOTE AT THAT TIME. NO POSTAGE IS NEEDED IF
MAILED IN THE UNITED STATES.
<PAGE>
NICHOLS RESEARCH CORPORATION
4040 Memorial Parkway, South
Post Office Box 400002
Huntsville, Alabama 35815-1502
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Nichols Research Corporation (the
"Company"), to be voted at the Annual Meeting of Shareholders to be held on
January 8, 1998, and at any and all adjournments thereof (the "Meeting").
The form of proxy permits specification, approval, disapproval or
abstention, as to each of the five proposals. Proposals 1, 2, 3, 4 and 5
will be presented at the Meeting by management. If the enclosed form of
proxy is properly executed, returned and not revoked, it will be voted in
accordance with the directions, if any, made by the shareholder or, if
directions are not made, will be voted in favor of Proposals 1, 2, 3, 4 and
5.
The cost of solicitation of proxies will be borne by the Company.
Proxies may be solicited by directors, officers, or regular employees of
the Company in person or by telephone, facsimile, or mail. The Company may
reimburse brokerage firms and others for their expenses in forwarding
solicitation material regarding the Meeting to beneficial owners. On or
about December 8, 1997, the Company will commence mailing this Proxy
Statement, the enclosed form of proxy, and attached Notice to holders of
its common stock.
Shareholders who sign proxies have the right to revoke them at any
time before they are voted by filing with the Secretary of the Company
either an instrument revoking the proxy or a duly executed proxy bearing a
later date, or by attending the Meeting and voting in person.
The close of business on November 28, 1997, has been fixed as the
record date for the determination of shareholders entitled to notice of and
to vote at the Meeting.
GENERAL
A majority of the shareholders entitled to vote must be present in
person, or be represented by proxy, to constitute a quorum and act upon the
proposed business. Failure of a quorum to be represented at the Meeting
will necessitate an adjournment and will subject the Company to additional
expense.
Election of each director and approval of Proposals 2, 4 and 5
discussed in this Proxy Statement require the affirmative vote of the
holders of a majority of the outstanding shares present and entitled to
vote at the Meeting. Proposal 3 discussed in this Proxy Statement requires
the affirmative vote of the holders of a majority of the outstanding shares
entitled to vote for approval. The Company's Certificate of Incorporation
and Bylaws do not con-tain any provisions concerning the treatment of
abstentions and broker non-votes. Delaware law treats abstentions as votes
which are not cast in favor of a proposal or nominee. Delaware law does
not address the treatment of broker non-votes; however, the Company will
treat broker non-votes as present for purposes of calculating the quorum
but as absent for purposes of calculating votes cast for or against a
proposal or nominee. The Board of Directors recommends that you vote FOR
each nominated director and FOR Proposals 2, 3, 4 and 5.
COMMON STOCK OUTSTANDING AND PRINCIPAL SHAREHOLDERS
As of November 3, 1997, there were outstanding 13,089,417 shares of
the Company's common stock, $.01 par value per share (the "Common Stock").
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by shareholders.
The following table sets forth information as of November 3, 1997, as
to (a) the only persons who were known by the Company to own beneficially
more than 5% of the outstanding Common Stock of the Company; (b) the shares
of such Common Stock beneficially owned by the directors and nominees of
the Company; (c) the shares of such Common Stock beneficially owned by
Chris H. Horgen, the Company's Chief Executive Officer during the Company's
last fiscal year, and by Michael J. Mruz, James C. Moule, Michael W. Solley
and James M. Coward, the four most highly compensated executive officers of
the Company (collectively, the "Named Executive Officers"); and (d) the
shares of such Common Stock beneficially owned by all executive officers
and directors of the Company as a group. Unless otherwise indicated, each
shareholder named has sole voting and dispositive power with respect to his
shares.
PERCENT OF TOTAL
NUMBER OF SHARES COMMON STOCK
NAMES(1) BENEFICIALLY OWNED OUTSTANDING (2)
- -------- ------------------- ---------------
MORE THAN 5% SHAREHOLDERS WHO ARE
NOT DIRECTORS OR NOMINEES
- ----------------------------------
Palisade Capital Management, L.L.C. 1,229,959 9.4%
David L. Babson and Co., Inc. 1,227,650 9.4%
DIRECTORS AND NOMINEES
- ----------------------
Chris H. Horgen 497,875(3) 3.8%
Michael J. Mruz 213,250(4) 1.6%
Roy J. Nichols 459,098(5) 3.5%
Patsy L. Hattox 64,409(6) *
Phil E. DePoy 6,250(7) *
Roger P. Heinisch 22,501(8) *
William E. Odom 11,003(9) *
James R. Thompson, Jr. 5,500(10) *
John R. Wynn 18,002(11) *
Thomas L. Patterson 808,424 6.2%
Daniel W. McGlaughlin 0 *
David Friend 20,400 *
NAMED EXECUTIVE OFFICERS WHO ARE NOT
DIRECTORS OR NOMINEES
- ------------------------------------
James C. Moule 55,916(12) *
Michael W. Solley 15,473(13) *
James M. Coward 29,090(14) *
ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (15 PERSONS) 2,241,221(15) 17.1%
- ------------------------------------
- -------------------
* Less than 1%
(1) The addresses for all persons listed above are in care of the Company
with the following exceptions: Palisade Capital Management, L.L.C.,
One Bridge Plaza, Suite 695, Fort Lee, NJ 07024; David L. Babson and
Co., Inc., One Memorial Drive, Cambridge, MA 02142-1300; Roy J.
Nichols, 2430 Covemont Drive, Huntsville, AL 35801; Phil E. DePoy, 195
North Harbor Drive, Apt. 4601, Chicago, IL 60601; Roger P. Heinisch,
23620 Olinda Trail, Scandia, MN 55071; William E. Odom, 3627 Everette
Street, N.W., Washington, DC 20008; James R. Thompson, Jr., 416
Randolph Avenue, Huntsville, AL 35801; Daniel W. McGlaughlin, 3430
Tuxedo Road, Atlanta, GA 30305; and David Friend, 267 Claredon Street,
Boston, MA 02116.
(2) Shares issuable under options exercisable within 60 days are
considered outstanding for the purpose of calculating the percentage
of Common Stock owned by each executive officer, director and more
than 5% shareholder who have options exercisable within 60 days, but
such shares are not to be considered outstanding with respect to any
other executive officer, director, or more than 5% shareholder.
(3) Includes 35,000 shares which are subject to immediately exercisable
options held by Mr. Horgen, 2,474 shares held by an adult child who is
a member of Mr. Horgen's household, and 99,000 shares held directly by
Mr. Horgen's spouse.
(4) Includes 56,250 shares which are subject to immediately exercisable
options held by Mr. Mruz and 42,000 shares held in a revocable trust,
of which both Mr. Mruz and his spouse are trustees.
(5) Represents 189,500 shares held in a revocable trust for Mr. Nichols
and his spouse, of which both are trustees, 98,335 shares held in the
Roy J. Nichols and Susan B. Nichols Charitable Remainder Unitrust, of
which Mr. Nichols is the sole trustee, and 171,263 shares held in the
Nichols Charitable Remainder Unitrust dated May 29, 1997, of which
both Mr. and Mrs. Nichols are trustees.
(6) Includes 1,534 shares which are subject to immediately exercisable
options held by Ms. Hattox.
(7) Includes 4,000 shares which are subject to immediately exercisable
options held by Dr. DePoy.
(8) Includes 7,000 shares which are subject to immediately exercisable
options held by Dr. Heinisch.
(9) Includes 7,000 shares which are subject to immediately exercisable
options held by General Odom, and 3,003 shares that are held jointly
with his spouse.
(10) Includes 2,500 shares which are subject to immediately exercisable
options held by Mr. Thompson.
(11) Includes 5,500 shares which are subject to immediately exercisable
options held by Mr. Wynn.
(12) Includes 5,536 shares which are subject to immediately exercisable
options held by Mr. Moule and 300 shares held directly by Mr. Moule's
spouse.
(13) Includes 8,501 shares which are subject to immediately exercisable
options held by Mr. Solley, and 6,972 shares that are held jointly
with his spouse.
(14) Includes 3,536 shares which are subject to immediately exercisable
options held by Mr. Coward, and 25,554 shares that are held jointly
with his spouse.
(15) Includes 136,357 shares which are subject to stock options exercisable
within 60 days, 99,300 shares owned by the spouses of two officers,
402,763 shares held in trusts by two officers and their spouses,
98,335 shares held in trust by an officer who is sole trustee, and
2,474 shares held by an adult child who is a member of an officer's
household.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of members of the Board of
Directors at twelve (12) by resolution pursuant to authority granted in the
Bylaws of the Company. The Board of Directors proposes that the twelve
(12) nominees listed below be elected as directors, to serve until the next
Annual Meeting of Shareholders and until their successors are duly elected
and qualified. It is the intention of the persons named in the proxy to
vote the proxies for the election of the nominees listed below, nine of
whom are presently directors of the Company. If any nominee should become
unavailable to serve as a director for any reason (which is not
anticipated), the persons named as proxies reserve full discretion to vote
for such other person or persons as may be nominated.
The names of the nominees for directors, together with certain
information regarding them, are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ---- ---- -------- -------
<S> <C> <C> <C>
Chris H. Horgen 51 Chairman of the Board 1976
Michael J. Mruz 52 Chief Executive Officer, President, Chief Operating
Officer and Director 1994
Roy J. Nichols 59 Senior Vice President and Vice Chairman 1976
Patsy L. Hattox 48 Chief Administrative Officer, Corporate Vice President,
Secretary and Director 1980
Roger P. Heinisch 59 Director 1984
John R. Wynn 53 Director 1985
William E. Odom 65 Director 1991
James R. Thompson, Jr. 61 Director 1992
Phil E. DePoy 62 Director 1994
Thomas L. Patterson 55 President of Nichols TXEN Corporation and Director 1997(1)
Daniel W. McGlaughlin 58 Director Nominee -
David Friend 49 Director Nominee -
</TABLE>
- ----------------
(1) Mr. Patterson was elected to the Board of Directors by the
shareholders on January 9, 1997, and served as a director until he
resigned from the Board on August 12, 1997. As part of the acquisition
of 19.9% of the capital stock of TXEN, Inc., in 1994, the Company's
Board of Directors agreed to consider the nomination of Mr. Patterson
as a director.
Chris H. Horgen, Roy J. Nichols, and Patsy L. Hattox are employed by
the Company in the positions set forth above, and have been employed by the
Company for more than five years. Chris H. Horgen served as the Company's
Chief Executive Officer and Chairman of the Board during all of the fiscal
year ended August 31, 1997.
Michael J. Mruz became President of the Company in August 1994, its
Chief Operating Officer and a Director on September 1, 1994, and its Chief
Executive Officer on September 1, 1997. From 1989 to 1994, Mr. Mruz served
as Executive Vice President, Chief Financial and Administrative Officer,
and a member of the Board of Directors of BDM International, Inc. ("BDM"),
a defense contractor. While at BDM, Mr. Mruz held the positions of
Corporate Vice President from 1988 to 1989, Vice President/General Manager
of BDM's Huntsville Technology Center from 1983 to 1988, Vice President,
Systems Design and Analysis from 1979 to 1983, and various management and
technical positions from 1974 to 1979. Mr. Mruz served in the U.S. Air
Force from 1968 through 1974 in research and development assignments
involving communications systems. Mr. Mruz holds a bachelors degree in
Mathematics from Villanova University, and a masters degree in Systems
Analysis from the Air Force Institute of Technology.
Dr. Heinisch is Vice President, Engineering with Alliant Techsystems,
Inc., a defense contractor. He was employed by Honeywell, Inc., a defense
contractor, from 1968 to 1990. While at Honeywell, Dr. Heinisch held the
positions of Vice President of Manufacturing and Materials Operations of
the Defense Systems Group from 1989 to 1990, Vice President and Deputy,
Science and Technology from 1988 to 1989, Vice President of Flight Systems
Operations from 1985 to 1988, and Vice President for Honeywell's System and
Research Center from 1982 to 1985. Dr. Heinisch holds bachelors and
masters degrees in Nuclear Engineering from Marquette University and a
doctorate degree in Engineering from Purdue University.
Mr. Wynn is a practicing attorney in Huntsville, Alabama, and has been
a member of the law firm of Lanier Ford Shaver & Payne, P.C., and its
predecessors since 1970. The firm has served as general counsel to the
Company since 1983.
Lt. Gen. (Ret.) has been Odom is Director of National Security Studies
for Hudson Institute, a nonprofit organization which analyzes, evaluates,
and formulates foreign, military, and domestic policy, since 1988. He also
serves as an adjunct professor at Yale University. In 1988, General Odom
retired from the Army after 34 years of service. At the time of his
retirement, General Odom was Director of the National Security Agency and
Chief, Central Security Service, at Fort George Meade, Maryland. As
Director of the National Security Agency from 1985 to 1988, General Odom
was responsible for the agency's work in signal intelligence and
communications security, and was the principal signal intelligence advisor
to the Secretary of Defense, the Director of Central Intelligence, and the
Joint Chiefs of Staff. General Odom received a bachelors degree in
Engineering from the United States Military Academy. He also holds masters
and doctorate degrees in Political Science from Columbia University.
Mr. Thompson has been Executive Vice President of Orbital Sciences
Corporation, a space technology company, since 1991. From 1989 to 1991, he
served as Deputy Administrator for the National Aeronautics and Space
Administration (NASA). From 1986 to 1989, he served as the Director of
NASA's Marshall Space Flight Center. From 1983 to 1986, he was the Deputy
Director for Technical Operations for Princeton Applied Physics Laboratory.
Mr. Thompson holds a bachelors degree in Aeronautical Engineering from
Georgia Institute of Technology and a masters degree in Mechanical
Engineering from the University of Florida.
Dr. DePoy has served as President of the National Opinion Research
Center ("NORC"), a non-profit corporation engaged in survey research for
the public interest and affiliated with the University of Chicago, since
1992. From 1985 to 1992, Dr. DePoy served as Distinguished Senior Fellow
and President and Chief Executive Officer (CEO) of the Center for Naval
Analyses (CNA) located in Alexandria, Virginia. CNA's research efforts
include operations analysis, systems analysis, and systems engineering
efforts for the Navy and other government agencies. He served in a variety
of capacities at CNA from 1959 through 1991, beginning as an analyst and
field representative. He became CNA's President and CEO in 1995. Dr.
DePoy received his bachelors degree in Chemical Engineering from Purdue
University, his masters degree in Nuclear Engineering from Massachusetts
Institute of Technology, and his doctorate degree in Chemical Engineering
from Stanford University.
Mr. Patterson is President of Nichols TXEN Corporation, a wholly-owned
subsidiary of Nichols Research Corporation. He has been active in the
healthcare, managed care, and insurance markets since 1980. Mr. Patterson
was co-founder and President of TXEN, Inc., an information technology
company for managed care operations, from 1989 to 1997. From 1980 to 1989,
he was President of SEAKO, Inc., an information technology company for
practice management and managed care systems. Prior to founding SEAKO,
Inc., in 1980, he was an engineer for the U.S. Navy Department and in sales
and marketing for Electronic Associates, Inc., Hewlett Packard, and Modular
Computer Systems, Inc. Mr. Patterson holds a bachelors degree in
Mechanical Engineering and a masters degree in Engineering Mechanics from
the University of Alabama.
Dr. McGlaughlin is President and Chief Executive Officer of Equifax,
Inc., an information services provider. He served as President and Chief
Operating Officer of Equifax from 1993 to 1996. He was elected to the
Equifax Board of Directors in 1990. Prior to joining Equifax, Dr.
McGlaughlin was Vice President of General Electric Corporation (GE) and
President of Calma, a technology-based subsidiary of GE, from 1984 to 1989.
He joined GE in 1983 and served as Vice President of Corporate Information
Systems, with responsibility for negotiating computer product and software
purchases for GE and managing the corporate technical staff. Before
joining GE, Dr. McGlaughlin was employed for 24 years with International
Business Machines Corporation (IBM). He held numerous managerial positions
at IBM, including Vice President - Manufacturing and Engineering, and Vice
President - Marketing of the office products division. Dr. McGlaughlin
received a bachelors degree in Mechanical Engineering from the University
of Cincinnati and a doctorate degree in Electrical Engineering from Case-
Western Reserve University in Cleveland.
Mr. Friend is the Chairman and Chief Executive Officer of FaxNet
Corporation, a telecommunications company specializing in enhanced
facsimile services. Prior to founding FaxNet in 1995, Mr. Friend was the
Chairman and co-founder of Pilot Software, Inc., a software company which
pioneered the commercial marketplace for executive information systems
and multi-dimensional databases. Before founding Pilot Software,
Inc., in June of 1983, Mr. Friend was Chairman and founder of Computer
Pictures Corporation, one of the first microcomputer software companies to
pioneer the use of integrated data and graphics for business analysis.
Prior to founding Computer Pictures, he was President of ARP Instruments,
an audio audio hardware manufacturer. Mr. Friend holds a bachelors degree
from Yale University.
[/R]
Mr. Horgen serves as a director of SouthTrust Bank of Alabama, N.A.
Mr. Nichols serves as a director of Adtran, Inc. Mr. Thompson serves as a
director of Orbital Sciences Corporation and Spacehab, Inc. Dr. Heinisch
serves as a director of NonVolatile Electronics, Inc. Dr. McGlaughlin
serves as a director of Equifax, Inc. General Odom serves as a director
for American Science and Engineering, Inc., V-One Corporation, and American
Technologies Group, Inc.
BOARD COMMITTEES AND ATTENDANCE
Under a policy adopted by the Board of Directors, each of the Audit,
Stock Option and Compensation Committees of the Board of Directors must be
composed of at least two (2) outside directors who rotate off the Committee
every three (3) years. Robert W. Hager, Mr. Wynn, Dr. Heinisch, General
Odom and Mr. Thompson served as members of the Audit Committee from
September 1, 1996, through January 9, 1997. From January 10, 1997, through
August 31, 1997, Mr. Wynn, Dr. DePoy and General Odom served as members of
the Audit Committee of the Board of Directors. The Audit Committee reviews
the services provided by the Company's independent accountants. During the
fiscal year ended August 31, 1997, the Audit Committee held three (3)
meetings, and all committee members were present except Mr. Thompson, who
was absent at one meeting. From September 1, 1996, through January 9,
1997, Dr. Heinisch, Mr. Wynn and General Odom served as members of the
Executive Officer Compensation Committee of the Board of Directors.
Dr.Heinsch, General Odom and Mr. Thompson served as members of that
committee from January 10, 1997, through August 31, 1997. The Executive
Officer Compensation Committee recommends to the Company's Board of
Directors the salary and cash bonus for the Company's Chief Executive
Officer and the President and Chief Operating Officer. During the fiscal
year ended August 31, 1997, the Executive Officer Compensation Committee
held two (2) meetings, and all committee members were present. From
September 1, 1996, through January 9, 1997, Messrs. Mruz and Nichols served
as members of the Stock Option Committee of the Board of Directors. From
January 10, 1997, through August 31, 1997, Mr. Thompson and Dr. DePoy
served as members of the Stock Option Committee. The Stock Option
Committee administers the Company's 1989 Incentive Stock Option Plan, the
Company's 1988 Employees' Stock Purchase Plan, the Company's 1991 Stock
Option Plan and the Company's Non-Employee Officer and Director Stock
Option Plan. During the fiscal year ended August 31, 1997, the Stock
Option Committee held no meetings, but took action by unanimous written
consent on eleven (11) occasions. During the fiscal year ended August 31,
1997, Messrs. Horgen, Mruz, Nichols and Wynn served as members of the
Executive Committee of the Board of Directors. The Executive Committee
takes action on behalf of the Board of Directors when it is inconvenient or
impossible for the entire Board of Directors to meet. During the fiscal
year August 31, 1997, the Executive Committee held one (1) meeting, and all
committee members were present.
During the fiscal year ended August 31, 1997, Dr. Heinisch, Mr. Wynn
and Dr. DePoy served as members of the Nominating Committee. The
Nominating Committee reviews and recommends the selection of candidates to
the Board of Directors. The Nominating Committee does not consider Board
nominees recommended by shareholders. During the fiscal year ended August
31, 1997, the Nominating Committee held one (1) meeting, and all members
were present.
The Board of Directors is responsible for suitable oversight of the
Company's performance, integrity, and compliance with strategic objectives.
As a part of this responsibility, the directors provide an annual written
evaluation of the performance of the Company's Chairman and Chief Executive
Officer and President. Additionally, the Board performs an annual, written
self-evaluation of its own performance with respect to its
responsibilities. Under a policy adopted by the Board of Directors, the
membership of the Board will consist of a majority of outside directors,
and each outside Board member will serve on at least one committee. In
addition, the policy requires after one year of service, each director must
own 2,000 shares of Common Stock to qualify for continued participation and
requires mandatory retirement of directors at age 70 years.
During the fiscal year ended August 31, 1997, the Board of Directors
held five (5) meetings, and all directors were present at such meetings
with the exception of Robert W. Hager who was not present at one meeting
and Mr. Thompson and Mr. Patterson who were not present at one meeting by
teleconference. The Board of Directors also adopted action by unanimous
written consent of all directors on thirteen (13) occasions during the
fiscal year ended August 31, 1997.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table summarizes for the last three completed fiscal
years the compensation of Chris H. Horgen, who served as Chief Executive
Officer of the Company during the last fiscal year, and the four most
highly compensated executive officers of the Company whose salary and bonus
exceeded $100,000 for the year ended August 31, 1997 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------ ----------------------------
OTHER RESTRICTED SHARES OF STOCK
NAME AND ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS AWARDED COMPENSATION
------------------ ---- ------ ----- ------------ ---------- --------------- ------------
(1) (2) (3)
Chris H. Horgen, Chairman 1997 $243,689 $109,000 - N/A N/A $12,874
of the Board and Chief 1996 227,300 115,000 - N/A 105,000 13,673
Executive Officer 1995 217,053 90,000 - N/A N/A 15,534
Michael J. Mruz(4), 1997 221,550 109,000 - N/A N/A 12,793
President, Chief Operating 1996 221,069 115,000 $44,105(5) N/A N/A 13,144
Officer and Director 1995 210,740 98,000 88,375(6) (7) N/A 14,960
James C. Moule, President 1997 183,590 60,000 - N/A N/A 12,771
Nichols Federal Business 1996 158,946 60,000 - N/A 9,000 14,246
Unit 1995 136,723 30,500 - N/A 9,000 15,184
Michael W. Solley, President 1997 150,940 60,000 - N/A N/A 12,734
Nichols InfoFed Businesss 1996 125,695 90,000 - N/A 18,000 13,382
Unit 1995 110,045 28,750 - N/A 15,003 13,080
James M. Coward, Corporate 1997 141,828 44,000 - N/A N/A 12,906
Vice President, Marketing 1996 127,471 55,000 - N/A 12,000 13,950
1995 123,897 24,000 - N/A 3,000 14,583
</TABLE>
__________________
(1) Includes the following amounts deferred by the Named Executive
Officers under the Company's 401(k) Profit Sharing Plan:
FISCAL YEAR ENDED AUGUST 31
----------------------------
Name 1995 1996 1997
---- ---- ---- ----
Chris H. Horgen $11,079 $10,583 $ 9,500
Michael J. Mruz 10,524 9,500 9,500
James C. Moule 6,608 8,758 12,333
Michael W. Solley 2,773 4,341 4,220
James M. Coward 5,857 7,301 13,393
Also includes the following amounts deferred by the Named Executive
Officers under the Company's Cafeteria Plan:
FISCAL YEAR ENDED AUGUST 31
---------------------------
Name 1995 1996 1997
---- ---- ---- ----
Chris H. Horgen $1,776 $1,164 $1,317
Michael J. Mruz 1,187 1,018 992
James C. Moule 1,803 1,458 2,627
Michael W. Solley 445 1,237 1,273
James M. Coward 2,516 2,227 2,539
(2) "Other Annual Compensation" for each of the named executives does not
include the value of certain perquisites or other personal benefits,
if any, furnished by the Company to the Named Executive Officers (or
for which it reimburses the Named Executive Officers), unless the
value of such benefits in total exceeds the lesser of $50,000 or 10%
of the total annual salary and bonus reported in the above table for
any Named Executive Officer.
(3) "All Other Compensation" is composed of Company contributions
(matching and profit sharing) to the Company's 401(k) Profit Sharing
Plan and forfeiture allocations under that retirement plan in fiscal
years ended August 31, 1995, 1996 and 1997 for the benefit of the
Named Executive Officers.
(4) On August 16, 1994, Mr. Mruz commenced employment with the Company as
President. Mr. Mruz became the Company's Chief Operating Officer and
a director on September 1, 1994, and became the Company's Chief
Executive Officer on September 1, 1997.
(5) Moving expenses associated with Mr. Mruz's relocation to Huntsville,
Alabama.
(6) Pursuant to his employment with the Company, on September 1, 1994, the
Company granted Mr. Mruz an option to purchase 70,000 shares of
restricted Common Stock for 90% of the fair market value of the Common
Stock as reported on the Nasdaq National Market on the date of
purchase. On September 1, 1994, Mr. Mruz exercised that option. On
that date, the fair market value of the shares purchased was $11.50
per share. Therefore, $80,500 of the amount reported in the table is
the dollar value of the difference between the $724,500 price paid by
Mr. Mruz for the 70,000 shares of restricted Common Stock and the
$805,000 fair market value of those shares on the purchase date. Also
included in the table is $7,875 paid by the Company for nine months of
full family COBRA health insurance premiums.
(7) On August 31, 1997, Mr. Mruz held the 105,000 shares (the 70,000
shares after the adjustment for the Company's most recent 3-for-2
stock split) of restricted Common Stock he acquired in the transaction
described in footnote (6) above. On that date, the fair market value
of those shares was $2,677,500, or $25.50 per share, as reported on
Nasdaq.
STOCK OPTION GRANTS, EXERCISES AND FISCAL YEAR END VALUES
- ---------------------------------------------------------
The Company from time to time awards stock options to executive
officers and other key employees pursuant to two stock option plans
approved by the shareholders of the Company. Commencing January 9, 1997,
members of the Stock Option Committee, which administers those two plans,
are eligible to receive options under those plans.
No stock options were granted during the last fiscal year to the Named
Executive Officers.
The following table sets forth certain information concerning
exercises of options during the last fiscal year by the Named Executive
Officers and the values as of August 31, 1997, of the unexercised stock
options held by the Named Executive Officers who are eligible to receive
options under the Company's two stock option plans:
<TABLE>
<CAPTION>
AGGREGATED FISCAL YEAR OPTION EXERCISES AND STOCK OPTION VALUES AT AUGUST 31, 1997
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END(2)
-------------------------------------- ---------------------------------
NUMBER OF
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXCERCISABLE UNEXERCISABLE
____ --------------- -------- ----------- ------------- ------------ -------------
(1)
Chris H. Horgen 35,000 $481,250 35,000 35,000 $ 472,500 $ 472,500
Michael J. Mruz N/A N/A 56,250 93,750 1,059,187 1,765,313
James C. Moule 4,779 62,623 5,536 15,501 83,338 123,728
Michael W. Solley 750 10,245 13,523 29,753 226,593 368,974
James M. Coward 5,251 67,976 3,536 14,501 57,018 155,088
</TABLE>
- -----------------
(1) Values realized are calculated by subtracting the exercise price from
the closing market price of the Common Stock as of the exercise
date(s).
(2) Values are calculated by subtracting the exercise price from the
$25.50 per share closing market price of the Common Stock on August
31, 1997, as quoted on the Nasdaq National Market.
COMPENSATION OF DIRECTORS
- -------------------------
In the fiscal year ended August 31, 1997, directors of the Company,
other than those who also served as officers of the Company, received an
annual director's fee of $10,000 for attendance at regular Board meetings,
$1,200 for each special meeting of the Board that they attended and
reimbursement for out-of-pocket expenses incurred in connection with
attendance at meetings. No fee was paid for attendance at committee
meetings during the fiscal year, except that a $500 fee was paid to those
members who attended one committee meeting held in August, 1997.
In addition to the annual director's fee, non-employee directors of
the Company are eligible to receive option grants under the Company's
Non-Employee Officer and Director Stock Option Plan (the "Non-Employee
Plan"). The Company adopted and the shareholders approved the Non-Employee
Plan effective August 29, 1988. The Non-Employee Plan is administered by
the Stock Option Committee of the Board of Directors.
The Non-Employee Plan covers 109,999 shares of the Company's Common
Stock. Officers and directors who are neither contractual nor common law
employees of the Company or any of its subsidiaries are eligible to
participate in the Non-Employee Plan. The Stock Option Committee
determines the non-employee officers and directors of the Company who are
granted options and the number of shares subject to each such option.
Options may be granted to purchase shares at 100% of the fair market value
of the shares on the date of grant. No non-employee officer or director
may be granted options to purchase in excess of 35% of the total number of
shares authorized for grant under the Non-Employee Plan. The options are
exercisable immediately after the date of grant and expire five years after
the date of grant. Options are nontransferable and may be exercised only
while the optionee is serving as a non-employee officer or director of the
Company or during various limited periods after death, retirement, or other
termination of service. The Non-Employee Plan terminates on October 24,
2003; however, options outstanding at the date of expiration of the
Non-Employee Plan may be exercised within the period provided in such
options.
During the fiscal year ended August 31, 1997, Dr. DePoy, Dr. Heinisch,
General Odom, Mr. Thompson, and Mr. Wynn were each granted an option to
purchase 1,000 shares of Common Stock at an average per share exercise
price of $24.25.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
- ---------------------------------------------------------------------------
On June 6, 1994, the Company entered into an Employment Agreement (the
"Agreement") with Michael J. Mruz to serve as President and Chief Operating
Officer of the Company. The Agreement was amended on September 1, 1997, to
state that Mr. Mruz is employed as the Chief Executive Officer and
President of the Company. The Agreement automatically renews on a year-to-
year basis. The Agreement provides that Mr. Mruz will be paid an annual
salary of $210,000, subject to increases as authorized by the Company. He
may be awarded discretionary performance bonuses. Pursuant to the
Agreement, on the date of his employment, the Company granted Mr. Mruz
incentive stock options to purchase 45,000 shares (after giving effect to
the Company's most recent 3-for-2 stock split) of Common Stock and non-
statutory stock options to purchase 105,000 shares (after giving effect to
the Company's most recent 3-for-2 stock split) of Common Stock, both
options having exercise prices equal to the fair market value of the Common
Stock on the date of grant. These options were granted under the 1991
Stock Option Plan and are subject to all the terms of that Plan. Also,
pursuant to the Agreement, on September 1, 1994, the Company granted Mr.
Mruz an option to purchase up to 70,000 shares of Common Stock for 90% of
the fair market value of the Common Stock on the date the option is
exercised. On September 1, 1994, Mr. Mruz exercised that option. SEE
footnote (6) to the Summary Compensation Table above. The shares purchased
by Mr. Mruz on exercise of this option are restricted and may not be sold
by Mr. Mruz without compliance with applicable securities laws and a right
of first refusal in favor of the Company which commences two years after
the date on which the stock was purchased. The employment of Mr. Mruz will
terminate upon his death or disability, upon 60 days' prior written notice
by either party, or for good cause. If Mr. Mruz is terminated by the
Company on 60 days' prior written notice within five years of his
employment date, he will be paid, as additional compensation, six months'
salary from the date of termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
- ---------------------------------------------------------------------------
The compensation of Mr. Horgen and Mr. Mruz is determined by the
Executive Officer Compensation Committee of the Company's Board of
Directors. From September 1, 1996, through January 9, 1997, Dr. Heinsch,
Mr. Wynn and General Odom served as members of the Executive Officer Com-
pensation Committee of the Board of Directors. Dr. Heinsch, General Odom
served as members of the Executive Officer Compensation Committee of the
Board of Directors. Dr. Heinsch, General Odom and Mr. Thompson served as
members of that committee from January 10, 1997, through August 31, 1997.
Mr. Wynn, a director of the Company, i s a member-shareholder in the
Huntsville, Alabama, law firm of Lanier Ford Shaver & Payne P.C., which
serves as general counsel to the Company. Responsibility for determination
of the compensation of all other executive officers was delegated to Mr.
Horgen and Mr. Mruz by the Board.
The Stock Option Committee, which administers the Company's two stock
option plans and the Non-Employee Officer and Director Stock Option Plan
is appointed by the Board of Directors. From September 1, 1996, through
January 9, 1997, Messrs. Mruz and Nichols served as members of the Stock
Option Committee of the Board of Directors. From January 10, 1997, through
August 31, 1997, Mr. Thompson and Dr. DePoy served as members of the Stock
Option Committee. The Stock Option Committee may award both incentive
stock options and non-statutory stock options to non-employee directors,
executive officers, and other key employees. During the fiscal year ended
August 31, 1997, the Stock Option Committee awarded a total of 242,900
stock options, 11,320 of which were awarded to executive officers and 5,000
of which were awarded to five (5) non-employee directors.
During the year ended August 31, 1997, none of the executive officers
of the Company served as a director or member of the compensation committee
(or board committee performing equivalent functions) of another entity, one
of whose executive officers served as a director of the Company or as a
member of the Company's Executive Officer Compensation Committee.
EXECUTIVE OFFICER COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------
Compensation of the executive officers consists principally of a
regular monthly salary, an annual bonus and stock options. The regular
monthly salary for the executive officers is generally established at the
beginning of each fiscal year. Each executive officer may be eligible for
a bonus award at the end of each fiscal year.
The compensation of Mr. Horgen and Mr. Mruz is determined by the
Executive Officer Compensation Committee (the "Compensation Committee").
Responsibility for determination of the compensation of other executive
officers was delegated to Mr. Horgen and Mr. Mruz by the Board.
In establishing the compensation of Mr. Horgen and Mr. Mruz for the
fiscal year that began September 1, 1996, the Compensation Committee
considered, among other matters, the regular monthly salary and bonuses
paid to Mr. Horgen and Mr. Mruz during the previous fiscal year, the rate
of inflation, raises given to other employees of the Company, performance
evaluations, the total compensation paid other employees of the Company,
the compensation ranges for other executive officers of ten (10) comparable
companies, and the financial performance of the Company. Although the
above factors were considered by the Compensation Committee, there was no
quantitative weight assigned to any of the factors considered and the
decision regarding regular monthly salary and bonus compensation was
subjective.
The factors considered by Mr. Horgen and Mr. Mruz in determining the
compensation of other executive officers include the executive's overall
contribution to the Company, his or her level of experience, comparable
salaries within the industry, salaries paid other executives of the
Company, evaluations of the executive and the Company's performance. No
quantitative weight is assigned to the various factors considered by Mr.
Horgen and Mr. Mruz, and the decision regarding regular monthly salary and
bonus compensation is subjective.
The Stock Option Committee of the Board may award both incentive stock
options and non-statutory stock options to the executive officers. During
the fiscal year ended August 31, 1997, the Stock Option Committee awarded a
total of 242,900 stock options, of which 11,320 shares were awarded to the
executive officers. The Stock Option Committee, in awarding stock options,
considers primarily the executive's contribution to the success of the
Company. This is a subjective determination.
EXECUTIVE OFFICER
COMPENSATION COMMITTEE STOCK OPTION COMMITTEE
- ---------------------- ----------------------
Roger P. Heinisch Michael J. Mruz Chris H. Horgen, Chairman
John R. Wynn Roy J. NIchols of the Board and Chief
William E. Odom Phil E. DePoy Executive Officer
James R. Thompson, Jr. James R. Thompson, Jr. Michael J. Mruz, President/
COO
PERFORMANCE GRAPH
- -----------------
The Company has changed from using a peer group of companies to using
the Standard & Poor's Software and Services industry index in order to
reflect a larger group of service industries. The peer group in the immed-
iately preceding year consisted of companies whose business was primarily
information technology.
The following graph sets forth a comparison of the yearly percentage
change in the cumulative total shareholder return on the Company's Common
Stock against the cumulative total return of the Standard & Poor's 500
Stock Index and the Standard & Poor's Software and Services industry index
for the five year period ended August 31, 1997.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
NICHOLS RESEARCH CORPORATION, S&P 500, S&P SOFTWARE AND SERVICES
(PERFORMANCE RESULTS THROUGH 8/31/97)
MEASUREMENT PERIOD (FISCAL S&P 500 S&P SOFTWARE
YEAR ENDED AUGUST 31) NRES INDEX AND SERVICES
- ---------------------------- ---- ------- ------------
Measurement Pt - 8/31/92 $100.00 $100.00 $100.00
1993 $ 84.00 $114.00 $138.00
1994 $ 81.00 $122.00 $177.00
1995 $124.00 $147.00 $259.00
1996 $217.00 $179.00 $334.00
1997 $257.00 $251.00 $607.00
The following graph sets forth a comparison of the yearly percentage
change in the cumulative total shareholder return on the Company's Common
Stock against the cumulative total return of the Standard & Poor's 500
Stock Index and a peer group of companies for the five year period ended
August 31, 1997.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
NICHOLS RESEARCH CORPORATION, S&P 500, PEER GROUP
(PERFORMANCE RESULTS THROUGH 8/31/97)
MEASUREMENT PERIOD (FISCAL S&P 500
YEAR ENDED AUGUST 31) NRES INDEX PEER GROUP
- -------------------------- ---- ------- ----------
Measurement Pt - 8/31/92 $100.00 $100.00 $100.00
1993 $ 84.03 $115.15 $131.00
1994 $ 80.67 $121.43 $193.57
1995 $124.37 $147.61 $299.30
1996 $216.81 $175.30 $434.68
1997 $257.14 $247.01 $624.68
The companies included in the peer group for the year ended August
31, 1997, and shown in the foregoing graph are:
American Management Systems
BDM International, Inc.
BTG, Inc.
CACI International, Inc.
Computer Horizons Corporation
Computer Management Sciences, Inc.
GRC International, Inc.
Keane, Inc.
Logicon, Inc.
Titan Corporation
Total shareholder return was determined by adding (a) the cumulative
amount of dividends for a given year, assuming dividend reinvestment,
and (b) the difference between the share price at the beginning and at the
end of the year, the sum of which was then divided by the share price at
the beginning of such year. The graph assumes $100 was invested on August
31, 1992, in the Company's Common Stock, in the Standard & Poor's 500
Stock Index companies, and in the Standard & Poor's Software and Services
industry index companies or peer group of companies.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company leases (pursuant to a lease which expires December 31,
2000) 17,850 square feet of office facilities in Huntsville, Alabama, at an
annual rental of $133,875, or $7.50 per square foot, from High Tech
Properties, a general partnership in which Roy J. Nichols and Chris H.
Horgen each own a one-sixth interest. The Company leases (pursuant to a
lease which expires August 31, 2000) another 40,000 square feet of office
space in Huntsville, Alabama, at an annual rental of $420,000, or $10.50
per square foot, from Parkway Properties I, a general partnership in which
Roy J. Nichols and Chris H. Horgen each own a one-fourth interest. In
addition, the Company leases (pursuant to a lease which expires on
February 28, 2002) another 40,899 square feet of office space in Huntsville,
Alabama, at an annual rental of $429,440, or $10.50 per square foot, from
Parkway Properties II, a general partnership in which Roy J. Nichols and
Chris H. Horgen each own a one-fifth interest. In the opinion of the
disinterested members of the Board of Directors, the rental payments
under these leases are on terms no less favorable to the Company than those
available from unrelated third parties. Additionally, the Board of
Directors has adopted a resolution providing that the Company will not
enter into leases or other transactions with officers, directors, prin-
cipal shareholders or their affiliates unless the transactions have
been approved by a majority of disinterested directors and are on terms
no less favorable to the Company than those which could be obtained from
unaffiliated parties. In fiscal year 1997, total lease payments to High
Tech Properties were $133,875, total lease payments to Parkway Properties
I were $420,000, and total lease payments to Parkway Properties II were
$429,440.
Before August 31, 1997, the Company owned 19.9% of the capital
stock of TXEN, Inc., an information systems and services company in the
managed healthcare industry. On August 31, 1997, the Company acquired the
remaining 80.1% of the capital stock of TXEN, Inc., for $43.8 million.
TXEN, Inc., was simultaneously merged into Nichols TXEN Corporation, a
wholly-owned subsidiary of the Company. Chris H. Horgen, Chief Executive
Officer and Chairman of the Board of the Company, owned a 4.5% interest in
TXEN, Inc., which he sold to the Company as part of that transaction for
approximately $2.7 million. Thomas L. Patterson, President of Nichols TXEN
Corporation and a member of the Company's Board of Directors from January
9, 1997 through August 12, 1997, was the President and a director of TXEN,
Inc., at the time of the transaction. He owned a 47% interest in TXEN,
Inc., which he sold to the Company as part of that transaction for
approximately $20 million in Common Stock and cash. In fiscal 1997, the
Company performed software design and development services and other
technical services for TXEN, Inc., for which it was paid $100,150.
John R. Wynn, who is a director of the Company, is a member-
shareholder in the Huntsville, Alabama law firm of Lanier Ford Shaver
& Payne P.C., general counsel to the Company. Fees paid in fiscal year
1997 by the Company to the firm did not exceed 5% of the gross revenues
of the firm for such year.
SECTION 16(A) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (SEC) and the National Association of Securities
Dealers, Inc. Executive officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms and any amendments
thereto furnished to the Company, or written representations that no
Forms 5 were required, the Company believes that during the one year
period ended August 31, 1997, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent
beneficial owners were complied with, with the exception of a Form 5 that
was filed late by Chris H. Horgen, Chief Executive Officer and Chairman of
the Board, which reported one (1) transaction.
PROPOSAL 2
NICHOLS RESEARCH CORPORATION
1997 STOCK OPTION PLAN
----------------------------
DESCRIPTION OF PROPOSED PLAN
- ----------------------------
At the Meeting, the shareholders will be asked to approve and adopt
the Nichols Research Corporation 1997 Stock Option Plan ("1997 Plan").
The 1997 Plan has the unanimous approval of the Board of Directors of the
Company ("Board"). The 1997 Plan was effective November 14, 1997, subject
to shareholder approval.
The Board believes that the 1997 Plan will encourage key employees to
increase their productivity, will motivate them to excel on behalf of the
Company, and will help the Company attract highly qualified employees. The
1997 Plan will serve not only to attract and retain outstanding
employees, but also will enable these employees to acquire or increase
their proprietary interest in the Company.
The following description of the principal provisions of the 1997
Plan is intended solely as a summary, and is subject to, and qualified
by, the full text of the 1997 Plan set forth in Exhibit A of this Proxy
Statement.
The Board of Directors recommends a vote FOR Proposal 2.
PLAN FEATURES
- -------------
The 1997 Plan will be administered by a committee composed of either
the entire Board of Directors or a committee of two or more non-employee
directors who do not have a material financial relationship with the
Company or any of its subsidiaries (the "Committee"). Persons serving on
the 1997 Plan's Committee may receive option grants under the 1997 Plan.
The 1997 Plan permits the Committee to grant both incentive stock
options ("Incentive Options"), as defined by Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"), and options which do not
qualify as Incentive Options ("Non-Statutory Options"). The Committee may
not amend or adjust an Incentive Option in any manner that causes the
Incentive Option to fail to continue to qualify as an Incentive Option.
The stock subject to options are shares of the Company's autho-
rized but unissued or reacquired one cent ($.01) par value common stock
("Common Stock"). Under the 1997 Plan, the Committee may, in its
discretion, commit up to 1,300,000 shares of the Company's Common Stock
(subject to adjustment in the event of stock dividends, stock splits, and
stock consolidations of the Common Stock, or any other increase or
decrease in the number of shares effected without receipt of consideration
by the Company) to options. The closing sale price of the Common Stock on
August 31, 1997, was $25.50 per share.
Options may be granted pursuant to the 1997 Plan from November 14,
1997, through November 14, 2007, to key employees (including officers) of
the Company and its subsidiaries. The Committee has the discretion to
designate option recipients, and the number of options to be granted to
each. No Incentive Option may be granted to an employee who, immedi-
ately after such Incentive Option is granted, owns or has rights to stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless such Incentive Option is granted at a
price which is at least 110% of the Fair Market Value (as defined below)
of the stock subject to the Incentive Option, and such Incentive Option by
its terms is not exercisable after the expiration of five (5) years from
the date such Incentive Option is granted.
A recipient of an Incentive Option will be required to pay for shares
received pursuant to the exercise of an Incentive Option not less than 100%
of the Fair Market Value (as defined below) of such shares on the date the
Incentive Option is granted. A recipient of a Non-Statutory Option will be
required to pay for shares received pursuant to the exercise of a Non-
Statutory Option not less than the par value of the shares (not less
than $.01 per share). Subject to the restrictions imposed by the 1997
Plan, the price of shares obtainable pursuant to the exercise of both
Incentive Options and Non-Statutory Options will be established by the
Committee in its sole discretion.
The fair market value of optioned shares is the closing sale price
of the Common Stock as reported on the Nasdaq National Market, or the mean
between the highest and lowest per share sales price should the stock be
listed on an exchange, on a given day, or if such stock is not traded on
that day, then on the next preceding day on which such stock was traded
("Fair Market Value"). The aggregate Fair Market Value (determined at the
time the option is granted) of the Common Stock with respect to which
Incentive Options are exercisable for the first time by an option recipient
during any calendar year (under all such plans of the Company and its
subsidiaries) may not exceed $100,000. If any single employee should
be granted an Incentive Option which, together with other applicable prior
Incentive Option grants, exceeds such maximum, the Incentive Option
will be treated as a Non-Statutory Option to the extent of such excess.
No Non-Statutory Option is exercisable either in whole or in part prior
to the earlier of (a) the date specified in the Non-Statutory Option, or
(b) six (6) months from the date the Non-Statutory Option is granted.
During the option recipient's lifetime, the Non-Statutory Option shall be
exercisable only by the option recipient or the option recipient's guardian
or legal representative if one has been appointed, and shall not be assign-
able or transferable other than by will or the laws of descent and
distribution. No Non-Statutory Option is exercisable after the earlier of
(1) the date specified in the Non-Statutory Option, or (2) the expiration
of ten (10) years from the date the Non-Statutory Option is granted.
No Incentive Option is exercisable, either in whole or in part,
prior to twenty-four (24) months from the date it is granted, and in no
event is an Incentive Option exercisable after the expiration of five (5)
years from the date it is granted. Up to one-third of the total shares
granted under the Incentive Option may be purchased in each of the
following installment periods, each beginning from the date the option
is granted: (1) after twenty-four months; (2) after thirty-six months;
and (3) after forty-eight months. Incentive Option recipients may
accumulate installments not yet exercised, which may be exercised, in
whole or in part, in any subsequent period but not later than five years
from the date the option is granted. An Incentive Option is exercisable
only by the option recipient and may not be assigned or transferred by
the option recipient other than by will or the laws of descent and dis-
tribution.
The option recipient may pay the option price in cash, with existing
shares of Common Stock, or a combination of the two. The option recipient
must pay for shares received pursuant to an option exercise on or before
the date of such exercise. Shares purchased on exercise with existing
Common Stock may not be sold or otherwise transferred for one (1) year
after such purchase.
The proceeds from all payments pursuant to the exercise of options
will be used for general corporate purposes. The Company and its subsid-
iaries will receive no cash or other payment upon the granting of options
pursuant to the 1997 Plan.
The Board of Directors may amend the 1997 Plan without shareholder
approval, except with respect to (i) a change in the number of shares for
which options may be granted under the 1997 Plan either in the aggregate or
to any individual employee, (ii) a change in the provisions relating to
the determination of employees to whom options may be granted, (iii)
removal of the administration of the 1997 Plan from the Committee, or (iv)
a decrease in the price at which Incentive Options may be granted.
To be entitled to the tax advantages associated with Incentive Options,
an option recipient must (1) not dispose of the stock within two years
after the Incentive Option is granted and hold the stock itself for at
least one year after such shares have been transferred to him following the
consummation of his purchase, and (2) remain in the continuous employ of
the Company, its subsidiaries, or both at all times from the date of the
grant to the date three months prior to the date the Incentive Option is
exercised. Under such circumstances, for federal income tax purposes, no
income to the employee, and no deduction to the Company, will result from
either the issuance or exercise of the Incentive Option, except that the
difference between the exercise price and the Fair Market Value of the
stock on the date of exercise constitutes a tax preference to the employee
for purposes of the alternative minimum tax. When the stock is sold or
exchanged, the amount by which the value of the stock at the time of its
disposition exceeds the option price will, if such treatment is available
under the Code, be treated as long-term capital gain. If, however, the
stock is disposed of prior to the expiration of the required holding
periods, the employee must treat the gain realized on the disposition as
ordinary income, to the extent of the lesser of (a) the Fair Market Value
of the option stock on the date of exercise minus the option price, or (b)
the amount realized on disposition of the stock minus the option price.
Amounts treated as ordinary income by the employee are deductible by
the Company. Under current law, net long-term capital gain on sales or
exchanges will be taxed to the employee at a 28% tax rate for stock held
more than one (1) year and at a 20% tax rate for stock held more than
eighteen (18) months.
The taxation of Non-Statutory Options is primarily governed by Section
83 of the Code and the Treasury Regulations issued thereunder. No income
to the employee and no deduction to the Company will result from the
issuance of a Non-Statutory Option. Upon exercise of the Non-Statutory
Option, the difference between the Fair Market Value of the stock and the
exercise price is taxable as ordinary income. If the stock is subsequently
sold, the basis for calculating gain or loss will be the price paid for
the stock upon exercise plus the amount, if any, of taxable income realized
upon exercise of the option. If the stock is sold after having been held
for more than one (1) year after the exercise of the option, the amount
realized will be subject to long-term capital gain or loss treatment. The
Company is entitled to a tax deduction equal to the amount of ordinary
income realized upon exercise of the Non-Statutory Option.
PLAN BENEFITS TO BE RECEIVED
- ----------------------------
The amount of options received or to be received under the 1997 Plan
by the Named Executive Officers, all other current executive officers, and
all other employees who are not executive officers cannot be determined
because option grants under the 1997 Plan are made in the sole discretion
of the Committee.
PROPOSAL 3
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
---------------------------------------------
On November 14, 1997, the Board of Directors unanimously approved and
recommended that the shareholders consider and approve an amendment
to Article IV of the Company's Certificate of Incorporation (the
"Certificate") that would increase the number of authorized shares of the
Company's Common Stock to 30,000,000 shares from 20,000,000 shares. The
Board of Directors believes that it is in the best interests of the Com-
pany and its shareholders to amend the Certificate to give effect to the
proposed amendment.
The proposed amendment to Article IV of the Certificate of Incorpora-
ation Incorporation is set forth below:
CAPITAL
The aggregate number of shares which the corporation is authorized to
issue is 30,000,000 shares of $.01 par value voting common stock all
of the same class and none preferred.
As of November 3, 1997, there were 13,089,417 shares of Common Stock
issued and outstanding. As of such date, 168,499 shares of Common Stock
were held in treasury. Options covering approximately 1,146,149 shares of
Common Stock have previously been granted but have not been exercised, and
1,083,764 additional shares of Common Stock have been reserved for
future purchases under the Company's stock purchase plan and for future
option grants under the Company's stock option plans. This leaves a
balance of 4,512,171 authorized shares of Common Stock available for future
use as of November 3, 1997.
The Board of Directors considers the proposed increase in the number
of authorized shares of Common Stock desirable in order to give the
Board the flexibility to issue Common Stock in connection with, among other
things, stock dividends and splits, acquisitions of other companies, stock
offerings and other financings, employee benefits, and for other general
corporate purposes without the expense and delay incidental to obtaining
shareholder approval of an amendment to the Certificate of Incorporation
increasing the number of authorized shares at the time of such action,
except as may be required for a particular issuance by applicable law. The
Company has no present plans, arrangements, or understandings to issue
additional shares of Common Stock as a result of a stock split, acquisi-
tion, offering, or otherwise.
The Board of Directors recommends a vote FOR Proposal 3.
PROPOSAL 4
NICHOLS RESEARCH CORPORATION
1997 STOCK BONUS PLAN
----------------------------
DESCRIPTION OF PROPOSED PLAN
- ----------------------------
On November 14, 1997, the Company's Board of Directors approved, sub-
ject to the approval of the Plan by stockholders at the Company's
Annual Shareholders' Meeting, the Nichols Research Corporation 1997 Stock
Bonus Plan (the "Plan") which provides for the awarding of a bonus in the
form of shares of Common Stock (the "Common Stock") to executive officers
of the Company.
The purpose of the Plan is to advance the interests of the Company by
encouraging and enabling the acquisition of a larger personal financial
interest in the Company by those executive officers upon whose judgment
and efforts the Company is largely dependent for the successful conduct
of its operations. It is also a purpose of the Plan to assist the
Company in retaining its executive officers.
The following is a brief summary of the terms of the Plan. This
summary is qualified in its entirety by reference to the full text of the
Plan, a copy of which is attached to this Proxy Statement as Exhibit B.
The Board of Directors recommends a vote FOR Proposal 4.
PLAN FEATURES
- -------------
The aggregate number of shares of Common Stock reserved and autho-
rized for issuance under the Plan is 150,000. If any distribution of
Common Stock is forfeited or cancelled for any reason, the forfeited or
cancelled shares of Common Stock shall be available for future awards
under the Plan. The Board of Directors may not increase the amount of
shares during the term of the Plan without stockholder approval.
The aggregate number of shares reserved for issuance under the Plan
are subject to adjustment to reflect certain subsequent Common Stock
changes including a stock dividend, stock split, recapitalization, combina-
tion of shares, merger or consolidation. The Board of Directors is
authorized to make equitable adjustments to such amounts in the event that
there is any change in the number or kind of outstanding shares of Common
Stock.
The Plan will be administered by a committee composed of either the
entire Board of Directors or a committee of two or more non-employee
directors who do not have a material financial relationship with the
Company or any of its subsidiaries (the "Committee"). Employee directors
serving on the Committee may receive bonus awards under the Plan. Subject
to the terms of the Plan, the Committee has complete authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating
to it and to make all other determinations necessary or advisable for the
administration of the Plan.
Only executive officers employed full-time by the Company during the
fiscal year are eligible to receive an award under the Plan. As of August
31, 1997, there were ten (10) executive officers who would be eligible to
participate in the Plan.
The Committee shall, in its sole discretion, determine the bonus
which an executive officer may receive in Common Stock. Because any
Common Stock awarded under the Plan is a bonus, no payment is required
from the recipient. At the close of trading on August 31, 1997, the
closing sale price of the Common Stock reported on the Nasdaq National
Market was $25.50 per share.
Awards granted under the Plan are distributable at such time or times
as the Committee, in its sole discretion, determines. In order to be
eligible to receive a stock bonus, the executive officer must be employed
by the Company or any of its subsidiaries on the date of the distribu-
tion. If the executive officer is not employed then, the bonus shall be
forfeited.
The Board of Directors may amend or modify any part of the Plan
without stockholder approval except for increasing the number of shares
authorized for issuance under the Plan.
The Company will be able to deduct as a compensation expense the
amount of all bonuses paid in a fiscal year. The amount of deduction
will be equal to the fair market value of all the Common Stock awarded as
of the date of the award. Section 162(m) of the Code permits a public
corporation to deduct compensation paid to an executive over $1,000,000 if
such compensation is paid after the executive meets certain performance-
based goals and criteria. The Plan does not contain any performance-based
goals or criteria that must be met by an executive to receive an award
under the Plan, and the Company would not be entitled to a deduction
under Section 162(m) of the Code if a bonus award to any executive officer
exceeds $1,000,000.
The following is a brief summary of the principal U.S. federal tax
implications of awards under the Plan. This summary is not intended to
be exhaustive and does not describe state, local or foreign tax laws.
Under present federal income tax law and regulations, the recipient
will recognize ordinary income when the Common Stock is actually distrib-
buted. The amount of ordinary income equals the fair market value of the
Common Stock on the date of distribution. The amount of income that is
taxable to a recipient upon the distribution of an award will be subject to
applicable withholding of a federal, state, and local income taxes and
social security taxes. The Company will be entitled to an equal tax
deduction in the fiscal year of distribution.
The federal income tax basis in any shares acquired by a recipient
through an award of a stock bonus will be the fair market value of such
shares on the date of distribution. Upon subsequent disposition of such
shares, the difference between the sales price and the fair market value
of shares on the date of distribution is taxable as long-term or short-
- -term capital gain or loss depending upon the length of time the shares
are held after the date of distribution.
There is no present intention to register the shares covered by the
Plan under the Securities Act of 1933 (the "1933 Act"). Without regis-
stration, all sales of Common Stock acquired under the Plan will require
compliance with an exemption under the 1933 Act. The recipients could
comply with Rule 144 for such an exemption, which provides, among other
things, for a one-year holding period from the date of receipt of the stock
bonus.
PLAN BENEFITS TO BE RECEIVED
- ----------------------------
The size of future bonus awards, if any, to executive officers of
the Company under the Plan is not determinable as of the date of this
Proxy Statement because of the discretionary nature of such awards.
PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-------------------------------------------------------------
The Board of Directors of the Company has appointed Ernst & Young LLP,
as the Company's independent public accountants to audit the financial
statements of the Company for the current fiscal year ending August 31,
1998, and to perform other appropriate accounting services. Such appoint-
ment will be presented to the shareholders for ratification at the meeting.
If the shareholders do not ratify the appointment, the selection of another
firm will be considered by the Board. A representative of Ernst & Young
LLP, is expected to be present at the Meeting to respond to questions
from shareholders and will be given the opportunity to make a statement
if he so desires.
The Board of Directors recommends a vote FOR Proposal 5.
DATE FOR RECEIPT OF SHAREHOLDERS' PROPOSALS
-------------------------------------------
Proposals of shareholders intended to be presented at the next Annual
Meeting must be received by the Company for inclusion in its 1998 Proxy
Materials no later than August 10, 1998.
OTHER
-----
Management does not know of any other matters to be presented at the
Meeting for action by shareholders. However, if any other matters are
properly brought before the Meeting or any adjournment thereof, votes will
be cast pursuant to the proxies in accordance with the best judgment of the
proxy holders with respect to such matter.
UPON WRITTEN REQUEST OF ANY SHAREHOLDER TO PATSY L. HATTOX, SECRETARY,
NICHOLS RESEARCH CORPORATION, P.O. BOX 400002, HUNTSVILLE, ALABAMA
35815-1502, THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
By order of the Board of Directors,
Patsy L. Hattox
Secretary
DATED: December 8, 1997
<PAGE>
EXHIBIT A
NICHOLS RESEARCH CORPORATION
1997 STOCK OPTION PLAN
1. PURPOSE
The 1997 Stock Option Plan ("Plan") of Nichols Research Corporation
("Corporation") is intended as an incentive for key employees which will
foster increased productivity, encourage them to remain in the employ of
the Corporation, and enable them to acquire or increase their proprietary
interest in the Corporation. At the discretion of the Committee, as
defined below, options issued pursuant to this Plan may be either incentive
stock options within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended ("Incentive Options"), or options which are not
Incentive Options ("Non-Statutory Options").
2. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee")
composed of either the entire Board of Directors or a committee of the
Board of Directors that is composed solely of two or more Non-Employee
Directors. For this purpose, the term "Non-Employee Director" shall mean a
person who is a member of the Company's Board of Directors who (a) is not
currently an officer or employee of the Company or any parent or subsidiary
of the Company, (b) does not directly or indirectly receive compensation
for serving as a consultant or in any other non-director capacity from the
Company or any parent or subsidiary of the Company that exceeds the dollar
amount for which disclosure would be required pursuant to Item 404(a) of
Regulation S-K promulgated under the Securities Act of 1933 and the
Securities Exchange Act of 1934 ("Regulation S-K"), (c) does not possess an
interest in any other transaction with the Company or any parent or
subsidiary of the Company for which disclosure would be required pursuant
to Item 404(a) of Regulation S-K, and (d) is not engaged in a business
relationship with the Company or any parent or subsidiary of the Company
which would be disclosable under Item 404(b) of Regulation S-K. In the
event the Committee is a committee composed of two or more Non-Employee
Directors, the Board of Directors may from time to time remove members
from, add members to, and fill vacancies, on the Committee. A member of
the Committee shall be eligible to participate in the Plan and receive
options under the Plan. The Committee shall select one of its members as
Chairman, and shall hold meetings at such times and places as it may
determine. Action taken by a majority of the Committee at which a quorum
is present, or action reduced to writing or approved in writing by a
majority of the members of the Committee, shall be valid acts of the
Committee. The Committee may, from time to time and at its discretion,
grant options to eligible employees. Subject to the terms of this Plan,
the Committee shall exercise its sole discretion in determining which
eligible employees shall receive options, and the number of shares subject
to each option granted.
The Committee's interpretation and construction of any provision of
the Plan, or any option granted under it, shall be final. No member of the
Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any option granted under the Plan.
3. ELIGIBILITY
Persons eligible to receive options shall be such key employees
(including officers) of the Corporation and its subsidiaries as the
Committee shall from time to time select. The determination of whether a
company is a subsidiary of the Corporation shall be made in accordance with
Section 425(f) of the Internal Revenue Code, as amended. No person shall
be eligible to receive an option for a larger number of shares than is
recommended for him by the Committee. In selecting the individuals to whom
options shall be granted, as well as determining the number of shares
subject to each option, the Committee shall weigh the position and the
responsibility of the individual being considered, the nature of his or her
services, his or her present and potential contributions to the
Corporation, and such other factors as the Committee deems relevant to
accomplish the purposes of the Plan. No Incentive Option shall be granted
to an employee who, immediately after such Incentive Option is granted,
owns or has rights to stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Corporation,
unless such Incentive Option is granted at a price which is at least 110%
of the fair market value of the stock subject to the Incentive Option and
such Incentive Option by its terms is not exercisable after the expiration
of five (5) years from the date such Incentive Option is granted.
4. STOCK
The stock subject to options issued under the Plan shall be shares of
the Corporation's authorized but unissued, or reacquired, one cent ($.01)
par value common stock (hereafter sometimes called "Capital Stock" or
"Common Stock"). The aggregate number of shares which may be issued
pursuant to option exercises shall not exceed 1,300,000 shares of Capital
Stock. The limitations established by each of the preceding sentences
shall be subject to adjustment as provided in Article 5(g) of the Plan.
In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of Capital Stock allocable to the
unexercised portion of such option may again be subjected to an option
under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
No obligation to retain an option recipient as an employee of the
Corporation or its subsidiaries, or to provide or continue providing the
option recipient with, or to permit the option recipient to retain, any
incident associated with or arising out of employment with the Corporation
or its subsidiaries, including but not limited to tenure, salary, benefits,
title, or position, shall be imposed on the Corporation or its subsidiaries
by virtue of the adoption of the Plan, the grant or acceptance of an option
granted pursuant to the Plan, or the exercise of an option under the Plan.
Stock options granted under the Plan shall be authorized by the Committee
and shall be evidenced by agreements in such form as the Committee shall
from time to time approve. Such agreements shall conform with, and be
subject to, the following terms and conditions:
(A) NUMBER OF SHARES AND FORM OF OPTION
Each option agreement shall state the number of shares to which it
pertains and whether the option granted is an Incentive Option or a Non-
Statutory Option.
(B) EXERCISE PRICE
Each option agreement shall state the exercise price. The per share
exercise price for shares obtainable pursuant to an Incentive Option shall
not be less than 100% of the Fair Market Value, as defined below, of the
shares of Capital Stock of the Corporation on the date the option is
granted. The per share exercise price for shares obtainable pursuant to a
Non-Statutory Option shall not be less than the par value of the shares.
For all purposes under the Plan, Fair Market Value shall be deemed to be
the closing sale price of the Common Stock as reported on the Nasdaq
National Market (or the mean between the highest and lowest per share sales
price should the Common Stock be listed on an exchange) on a given day, or
if such stock is not traded on that day, then on the next preceding day on
which such stock was traded ("Fair Market Value"). Subject to the
foregoing, the Committee shall have full authority and discretion, and
shall be fully protected, with respect to the price fixed for shares
obtainable pursuant to the exercise of options. The aggregate Fair Market
Value (determined at the time the Incentive Option is granted) of the
Common Stock with respect to which Incentive Options are exercisable for
the first time by the option recipient during any calendar year (under all
such plans of the Corporation and its subsidiary corporations) shall not
exceed $100,000. If an option recipient is granted an Incentive Option
which exceeds this limitation, the Incentive Option shall be treated as
Non-Statutory Options to the extent such limitation is exceeded.
(C) MEDIUM AND TIME OF PAYMENT
The option recipient may pay the exercise price in cash, by means of
unrestricted shares of the Corporation's Common Stock, or in any
combination thereof. Notwithstanding the foregoing, shares of the
Corporation's Common Stock may be used to exercise an option only if the
number of shares for which the option is then being exercised is at least
five hundred (500) shares. The option recipient must pay for shares
received pursuant to an option exercise on or before the date of such
exercise. Payment in currency or by check, bank draft, cashier's check, or
postal money order shall be considered payment in cash. In the event of
payment in the Corporation's Common Stock, the shares used in payment of
the exercise price shall be taken at the Fair Market Value of such shares
on the date they are tendered to the Corporation. The shares purchased
upon exercise of an option with shares of the Corporation's Common Stock
owned by the option recipient may not be sold, exchanged, pledged or
otherwise transferred during the one (1) year period following such
purchase and shall bear the following restrictive legend:
The shares represented by this certificate were
acquired with shares of Nichols Research Corporation
common stock and, therefore, pursuant to the terms of
Section 5(c) of the Nichols Research Corporation 1997
Stock Option Plan, may not be sold, exchanged, pledged
or otherwise transferred during the one (1) year period
commencing on the date shown on the face of this
certificate.
(D) TERM AND EXERCISE OF OPTIONS
No Non-Statutory Option shall be exercisable either in whole or in
part prior to the earlier of (a) the date specified in the Non-Statutory
Option, or (b) six (6) months from the date the Non-Statutory Option is
granted. During the option recipient's lifetime, the Non-Statutory Option
shall be exercisable only by the option recipient or the option recipient's
guardian or legal representative if one has been appointed, and shall not
be assignable or transferable other than by will or the laws of descent and
distribution. No Non-Statutory Option shall be exercisable after the
earlier of (1) the date specified in the Non-Statutory Option, or (2) the
expiration of ten (10) years from the date the Non-Statutory Option is
granted.
No Incentive Option shall be exercisable either in whole or in part
prior to twenty-four (24) months from the date it is granted. Subject to
the right of accretion provided in the next to last sentence of this
Article 5 (d), each Incentive Option shall be exercisable in three (3)
installments as follows: (1) up to one-third of the total shares covered by
the Incentive Option may be purchased after twenty-four (24) months from
the date the Incentive Option is granted; (2) up to one-third of the total
shares covered by the Incentive Option may be purchased after thirty-six
(36) months from the date the Incentive Option is granted; and (3) up to
one-third of the total shares covered by the Incentive Option may be
purchased after forty-eight (48) months from the date the Incentive Option
is granted. The Committee may provide, however, for the exercise of an
Incentive Option after the initial twenty-four month period, either as an
increased percentage of shares per year or as to all remaining shares, if
the option recipient dies, is or becomes disabled, or, with the permission
of the Committee, retires. During the option recipient's lifetime, the
Incentive Option shall be exercisable only by the option recipient, or the
option recipient's guardian or legal representative if one has been
appointed, and shall not be assignable or transferable other than by will
or the laws of descent and distribution. To the extent not exercised,
Incentive Option installments shall accumulate and be exercisable, in whole
or in part, in any subsequent period but not later than five (5) years from
the date the Incentive Option is granted. No Incentive Option shall be
exercisable after the expiration of five (5) years from the date it is
granted.
(E) TERMINATION OF EMPLOYMENT EXCEPT DEATH
If an option recipient's employment with the Corporation or its
subsidiaries ceases for any reason other than the option recipient's death,
all options held by him pursuant to the Plan and not previously exercised
as of the date of such termination shall terminate immediately and become
void and of no effect; provided, however, that the Committee shall have the
right to extend the exercise period by up to three (3) months from the date
the option recipient's employment is terminated. If termination occurs
because of disability, or as a result of the option recipient's retirement
with the consent of the Corporation, such disabled or retiring option
recipient shall have the right to exercise any options which were
exercisable but unexercised as of the date of such termination at any time
within three (3) months after such termination, subject to the condition
that no Non-Statutory Option shall be exercisable after the date specified
in the Non-Statutory Option and no Incentive Option shall be exercisable
after the expiration of five (5) years from the date it is granted. The
term "disability" shall mean a mental or physical condition resulting from
an injury or illness (other than substantial dependence on or addiction to
alcohol or any drug) which renders an option recipient incapable of
performing his normal duties as an employee of the Corporation or its
subsidiaries. The option recipient shall not be considered to be disabled
until the Committee shall have been furnished the opinion of two licensed
physicians that the option recipient is prevented from performing his
duties and that his condition is likely to continue for a period in excess
of twelve (12) months or for an indefinite period. Whether termination of
employment is due to disability or is to be considered a retirement with
the consent of the Committee shall be determined by the Committee in its
sole and absolute discretion, and such determination shall be final and
conclusive. Authorized leaves of absence or absence for military service
shall not constitute termination of employment for the purposes of the
Plan.
(F) DEATH OF OPTION RECIPIENT AND TRANSFER OF OPTION
If an option recipient dies while employed by the Corporation or its
subsidiaries or within three (3) months after being terminated due to
disability or retirement with the consent of the Committee, and has not
fully exercised all of his exercisable options, such options may be
exercised, at any time within three (3) months after such termination, by
the option recipient's executors or administrators, or by any person or
persons who shall have acquired the option directly from the option
recipient by bequest or inheritance. In no event, however, shall a Non-
Statutory Option be exercisable after the date specified in the Non-
Statutory Option and no Incentive Option shall be exercisable more than
five (5) years after the date such Incentive Option is granted. In the
event an option is transferred to an option recipient's estate, or to a
person to whom such right devolves by reason of the option recipient's
death, then the option shall be nontransferable by the option recipient's
executor or administrator or by such person, except that the option may be
distributed by the option recipient's executors or administrators to the
distributees of the option recipient's estate entitled thereto.
(G) RECAPITALIZATION
Subject to any required action by the shareholders, the aggregate
number of shares which may be issued pursuant to option exercises, the
number of shares of Capital Stock covered by each outstanding option, and
the price per share applicable to shares under such option, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Capital Stock of the Corporation resulting from a
subdivision or consolidation of shares or the payment of a stock dividend
(but only on the Capital Stock), or any other increase or decrease in the
number of such shares effected without receipt of consideration by the
Corporation.
If the Corporation is merged with or consolidated into any other
corporation, or if an or substantially all of the business or property of
the Corporation is sold, or if the Corporation is liquidated or dissolved,
or if a tender or exchange offer is made for all or any part of the
Corporation's voting securities, or if any other actual or threatened
change in control of the Corporation occurs, the Committee, with or without
the consent of the option recipient, may (but shall not be obligated to),
either at the time of or in anticipation of any such transaction, take any
of the following actions that the Committee may deem appropriate in its
sole and absolute discretion: (i) cancel any option by providing for the
payment to the option recipient of the excess of the Fair Market Value of
the shares subject to the option over the exercise price of the option,
(ii) substitute a new option of substantially equivalent value for any
option, (iii) accelerate the exercise terms of any option, or (iv) make
such other adjustments in the terms and conditions of any option as it
deems appropriate.
In the event of a change in Capital Stock of the Corporation as
presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any
change shall be deemed to be the Capital Stock within the meaning of the
Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, provided
that each Incentive Option granted pursuant to this Plan shall not be
adjusted in a manner that causes the Incentive Option to fail to continue
to qualify as an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended.
Except as otherwise expressly provided in this Article 5(g), the
option recipient shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock
of any class, or by reason of any dissolution, liquidation, merger or
consolidation or spin-off of assets or stock of another corporation. Any
issue by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Capital Stock subject to the option.
The grant of an option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge, consolidate, dissolve, liquidate, sell, or transfer
all or any part of its business or assets.
(H) RIGHTS AS A STOCKHOLDER
An option recipient or a transferee of an option shall have no rights
as a stockholder with respect to any shares subject to his option until a
stock certificate is issued to him for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities,
or other property), distributions, or other rights for which the record
date is prior to the date such stock certificate is issued, except as
provided in Article 5 (g) of the Plan.
(I) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS
Subject to the terms of the Plan, the Committee may modify, extend or
renew outstanding options granted under the Plan, or accept the surrender
of outstanding options (to the extent not theretofore exercised) and
authorize the granting of new options in substitution therefore (to the
extent not theretofore exercised). The Committee shall not, however,
modify any outstanding Incentive Options so as to specify a lower price, or
accept the surrender of outstanding Incentive Options and authorize the
granting of new options in substitution therefore specifying a lower price.
Notwithstanding the foregoing, however, no modification of an option shall,
without the consent of the option recipient, alter or impair any rights or
obligations under any option theretofore granted under the Plan.
(J) WITHHOLDING
Whenever the Corporation proposes or is required to issue or transfer
shares of Capital Stock under the Plan, the Corporation shall have the
right to require the option recipient, prior to the issuance or delivery of
any certificates for such shares, to remit to the Corporation, or provide
indemnification satisfactory to the Corporation for, an amount sufficient
to satisfy any federal, state, local, and foreign withholding tax
requirements incurred as a result of an option exercise under the Plan by
such option recipient.
(K) OTHER PROVISIONS
The option agreements authorized under the Plan shall contain such
other provisions, including, without limitation, restrictions upon the
exercise of the option, as the Committee shall deem advisable. Limitations
and restrictions shall be placed upon the exercise of Incentive Options, in
the Incentive Option agreement, so that such option will be an "incentive
stock option" as defined in Section 422 of the Internal Revenue Code of
1986.
6. TERM OF PLAN
Incentive Options and Non-Statutory Options may be granted pursuant to
the Plan from time to time within a period of ten (10) years commencing on
November 14, 1997 and continuing through November 14, 2007.
7. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have
as directors or as members of the Committee, the members of the Committee
shall be indemnified by the Corporation against the reasonable expenses,
including attorney's fees, actually and necessarily incurred in connection
with the defense of any action, suit, or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan
or any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Corporation) or paid by them in satisfaction
of a judgment in any such action or suit, or proceeding, except in relation
to matters as to which it shall be adjudged in such action, suit, or
proceeding that such Committee member is liable for negligence or
misconduct in the performance of his duties; provided, that within sixty
(60) days after institution of any such action, suit, or proceeding a
Committee member shall in writing offer the Corporation the opportunity, at
its own expense, to handle and defend the same.
8. AMENDMENT OF THE PLAN
The Board of Directors, insofar as permitted by law, shall have the
right from time to time with respect to any shares at the time not subject
to options, to suspend or discontinue the Plan or revise or amend it in any
respect whatsoever, except that without approval of the shareholders of the
Company, no such revision or amendment shall: (a) change the number of
shares for which options may be granted under the Plan either in the
aggregate or to any individual employee, (b) change the provisions relating
to the determination of employees to whom options shall be granted, (c)
remove the administration of the Plan from the Committee, or (d) decrease
the price at which Incentive Options may be granted.
9. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of Capital
Stock pursuant to the exercise of options will be used for general
corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the option
recipient to exercise such option.
11. APPROVAL OF STOCKHOLDERS
This Plan shall take effect as of November 14, 1997, subject to
approval by the affirmative vote of the holders of a majority of the
outstanding shares of Capital Stock of the Corporation present, or
represented, and entitled to vote at a meeting of the shareholders, which
approval must occur within the period beginning twelve (12) months before
and ending twelve (12) months after the date the Plan is adopted by the
Board of Directors.
<PAGE>
EXHIBIT B
NICHOLS RESEARCH CORPORATION
1997 STOCK BONUS PLAN
ARTICLE I: GENERAL PROVISIONS AND PURPOSES OF THE PLAN
1.1 TITLE. The title of the stock bonus plan which is described herein is
"Nichols Research Corporation 1997 Stock Bonus Plan" (the "Plan").
1.2 ISSUER. The issuer of the stock which is the subject of the Plan is
Nichols Research Corporation, a Delaware corporation, having its principal
place of business at 4040 Memorial Parkway South, Huntsville, Alabama 35802
(the "Company").
1.3. GENERAL PURPOSES OF THE PLAN. The Company desires to establish the
Plan to provide key employees, as hereinafter defined, with an opportunity
to acquire Nichols Research Corporation Common Stock with a view toward
rewarding those key employees for past services and providing an incentive
to remain in the employ of the Company.
1.4. EFFECTIVE DATE. The Plan, as set forth herein, shall become effective
upon adoption by the Company's Board of Directors and approval by the
Company's stockholders at its annual meeting. The Plan shall remain in
effect until it is terminated under Section 1.6.
1.5 TERM OF THE PLAN. The Plan shall commence with the Company's fiscal
year beginning September 1, 1997 and continue for each subsequent fiscal
year until it is terminated under Section 1.6.
1.6 AMENDMENT OR TERMINATION. The Board of Directors may, at any time
and for any reason, amend or terminate the Plan. However, any amendment of
the Plan shall be subject to the approval of the Company's stockholders to
the extent required by Section 5.2 hereof, applicable laws, regulations or
rules.
1.7 ELIGIBLE EMPLOYEES. A person shall be eligible to receive a stock
bonus award for a given fiscal year if he or she:
a. was a full-time salaried employee of the Company or any of its
subsidiaries at any time during the fiscal year; and
b. is an executive officer of the Company ("key employee").
1.8 SECURITIES TO BE OFFERED. The shares reserved for award under the
Plan shall consist of 150,000 shares of Nichols Research Corporation Common
Stock, $0.01 par value (the "Stock Bonus") and, in accordance with Article
V hereof, may be increased by action of the Board of Directors. The Stock
Bonus shall be issued from either authorized but unissued shares or
treasury shares as the Board of Directors, in its judgment, deems
advisable. Upon the receipt of a stock certificate under the Plan, an
employee shall have all the rights normally associated with stock ownership
including the right to vote and receive any dividends declared by the
Company's Board of Directors.
1.9. SECURITIES REGULATION AND RESTRICTIONS ON RESALE. The Company shall
not be obligated to issue any Stock Bonus unless and until the shares of
the Stock Bonus are effectively registered or exempt from registration
under the Securities Act of 1933 and from any other federal or state law
governing the distribution and issuance of such shares or any securities
exchange regulation to which the Company might be subject. In the event
the shares are not effectively registered, but can be issued by virtue of
an exemption, the Company may issue shares of the Stock Bonus to an
employee if the employee represents that he is acquiring such shares
received under the Plan as an investment and not with the view to, or for
sale in connection with, the distribution of any such shares. Certificates
for shares of the Stock Bonus thus issued shall bear an appropriate legend
or legends reciting such representation and the restriction on transfer of
the shares.
ARTICLE II: ADMINISTRATION OF THE PLAN
2.1. THE COMMITTEE. The Plan shall be administered by a committee (the
"Committee") composed of either the entire Board of Directors or a
committee of the Board of Directors that is composed solely of two or more
Non-Employee Directors. For this purpose, the term "Non-Employee Director"
shall mean a person who is a member of the Company's Board of Directors who
(a) is not currently an officer or employee of the Company or any parent or
subsidiary of the Company, (b) does not directly or indirectly receive
compensation for serving as a consultant or in any other non-director
capacity from the Company or any parent or subsidiary of the Company that
exceeds the dollar amount for which disclosure would be required pursuant
to Item 404(a) of Regulation S-K promulgated under the Securities Act of
1933 and the Securities Exchange Act of 1934 ("Regulation S-K"), (c) does
not possess an interest in any other transaction with the Company or any
parent or subsidiary of the Company for which disclosure would be required
pursuant to Item 404(a) of Regulation S-K, and (d) is not engaged in a
business relationship with the Company or any parent or subsidiary of the
Company which would be disclosable under Item 404(b) of Regulation S-K. In
the event the Committee is a committee composed of two or more Non-Employee
Directors, the Board of Directors may from time to time remove members
from, add members to, and fill vacancies, on the Committee. The Committee
shall select one of its members as Chairman, and shall hold meetings at
such times and places as it may determine. Action taken by a majority of
the Committee at which a quorum is present, or action reduced to writing or
approved in writing by a majority of the members of the Committee, shall be
valid acts of the Committee.
The Committee's interpretation and construction of any provision of
the Plan, or any award granted under it, shall be final. No member of the
Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any award granted under the Plan.
2.2. POWERS OF THE COMMITTEE. In addition to the awarding of the Stock
Bonus as set forth in Paragraph 3.1 hereof, the Committee, subject to the
express provisions of the Plan, shall have complete authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to
it, and to make all other determinations necessary or advisable for the
administration of the Plan.
ARTICLE III: STOCK BONUS AWARD
3.1. AWARDING THE STOCK BONUS. The Committee has the complete authority,
in its sole discretion, to determine the eligible key employees to whom a
Stock Bonus shall be awarded and the number of shares comprising each such
Stock Bonus.
3.2. CONSIDERATION. Inasmuch as the Stock Bonus awarded pursuant to this
Plan is a bonus, no monetary consideration shall pass from an employee to
the Company.
3.3. ADJUSTMENT OF THE NUMBER OF SHARES. The number of shares of the Stock
Bonus subject to any award under the Plan but not yet distributed and the
number of shares reserved for issuance pursuant to the Plan but not yet
covered by a bonus shall be adjusted to reflect any stock dividend, stock
split or any other capital stock change. Any other adjustments shall be
equitably made by the Board in its sole discretion. However, no adjustment
shall require the Company to award a fractional share.
ARTICLE IV: DISTRIBUTION OF STOCK BONUSES
4.1. TIME OF DISTRIBUTION. Any Stock Bonus awarded under the Plan for a
given fiscal year shall be distributed to the employee at such time or
times as the Committee shall determine.
4.2. ELIGIBILITY FOR DISTRIBUTION. In order to be eligible to receive a
Stock Bonus, the employee must be employed by the Company or any of its
subsidiaries on the date on which the bonus is payable. If the employee is
not so employed on the date on which the bonus is payable, that bonus shall
be forfeited.
ARTICLE V: ADOPTION AND MODIFICATION
5.1. ADOPTION. After the Board of Directors approves the Plan or any
amendment thereto which requires shareholder approval in accordance with
Paragraph 5.2, below, the Plan or amendment shall be approved by a majority
of the shareholders present and entitled to vote at the next regular Annual
Shareholders' Meeting.
5.2. MODIFICATIONS. The Board of Directors of the Company may amend or
modify any part of the Plan without shareholder approval except for the
amount of shares reserved for the Plan set forth in Paragraph 1.8.
<PAGE>
NICHOLS RESEARCH CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
January 8, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE NICHOLS RESEARCH CORPORATION BOARD OF
DIRECTORS.
The undersigned hereby appoints Chris H. Horgen and Patsy L. Hattox, or either
of them, as Proxies, each with the power to appoint his or her substitute, and
hereby authorizes them to represent and to vote, as directed on the reverse
side, all the shares of Common Stock of Nichols Research Corporation which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Shareholders to be held on January 8, 1998, or any adjournment(s)
thereof. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2,
3, 4 AND 5.
In their discretion, the Proxies are authorized to vote upon other business as
may properly come before the meeting or any adjournment(s) thereof. If any
named nominee is not able to serve, the Proxies may vote for such other person
or persons nominated in accordance with their best judgment.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, 4 and 5.
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed to the right (except as marked to the
contrary)
/ / WITHHOLD AUTHORITY to vote for all nominees listed to the right.
NOMINEES: Chris H. Horgen, Michael J. Mruz, Roy J. Nichols, Patsy L.
Hattox, Roger P. Heinisch, John R. Wynn, William E. Odom, James R.
Thompson, Jr., Phil E. DePoy, Thomas L. Patterson, David W. McGlaughlin
and David Friend
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below.)
___________________________________________________
2. Approval of the Nichols Research Corporation 1997 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Approval of an Amendment to the Company's Certificate of Incorporation
to increase the authorized shares of Common Stock from 20,000,000 to
30,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
4. Approval of the Nichols Research Corporation 1997 Stock Bonus Plan.
/ / FOR / / AGAINST / / ABSTAIN
5. Ratification of Ernst & Young LLP as the independent public accountants
of the Company.
/ / FOR / / AGAINST / / ABSTAIN
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee,
or guardian, please give full title as such. If a
corporation, please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Dated:______________________________, 1997
____________________________________________
(Signature)
_________________________________________
(Signature if held jointly)
PLEASE SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
