<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.
/ / 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
4090 Memorial Parkway, South
Post Office Box 400002
Huntsville, Alabama 35815-1502
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
January 14, 1999
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, 4090 Memorial Parkway, South, Huntsville, Alabama, on
January 14, 1999, at 5:00 p.m. local time for the following purposes:
1. To elect thirteen (13) 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 on an amendment to the Nichols Research
Corporation 1988 Employees' Stock Purchase Plan to increase the number of
shares of common stock for issuance thereunder by 1,000,000 shares
(designated as Proposal 2 in the accompanying Proxy Statement).
3. To consider and vote on an amendment to the Nichols Research
Corporation 1988 Employees' Stock Purchase Plan to change the exercise
price of options issued under that plan to 85% of the fair market value of
the common stock on the first day of the Option Period or the last day of
the Option Period, whichever is less (designated as Proposal 3 in the
accompanying Proxy Statement).
4. 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 4 in the accompanying Proxy Statement).
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on November 27, 1998, has been fixed as the record
date for determination of shareholders entitled to notice of and to vote at the
meeting.
Copies of the Company's Annual Report to Shareholders and Form 10-K for
the fiscal year ended August 31, 1998, are enclosed.
By order of the Board of Directors,
Patsy L. Hattox
Secretary
Huntsville, Alabama
December 7, 1998
<PAGE>
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
4090 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 14, 1999, and at any and all adjournments thereof (the "Meeting"). The
form of proxy permits specification, approval, disapproval or abstention as to
each of the four proposals. Proposals 1, 2, 3, and 4 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, and 4.
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 9,
1998, 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 27, 1998, 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, 3 and 4 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.
The Company's Certificate of Incorporation and Bylaws do not contain 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
and 4.
1
<PAGE>
COMMON STOCK OUTSTANDING AND PRINCIPAL SHAREHOLDERS
As of November 3, 1998, there were outstanding 13,854,932 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, 1998, 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 Chairman of the Board, and by Michael J. Mruz, the Company's Chief
Executive Officer, 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
- -----------------------------------
David L. Babson and Co., Inc. 1,415,800 10.2%
Palisade Capital Management, L.L.C. 1,188,509 8.6%
Directors and Nominees
- -----------------------------------
Chris H. Horgen 462,875 (3) 3.0%
Michael J. Mruz 318,730 (4) 2.3%
Roy J. Nichols 418,498 (5) 3.0%
Patsy L. Hattox 63,208 (6) *
Phil E. DePoy 6,250 (7) *
Roger P. Heinisch 24,501 (8) *
William E. Odom 11,000 (9) *
James R. Thompson, Jr. 5,000 (10) *
John R. Wynn 19,002 (11) *
Thomas L. Patterson 762,150 (12) 5.5%
Daniel W. McGlaughlin 5,000 *
David Friend 22,400 *
Charles A. Leader 0 *
2
<PAGE>
Named Executive Officers who
are not Directors or Nominees
- -----------------------------------
James C. Moule 50,708 (13) *
Michael W. Solley 28,224 (14) *
James M. Coward 17,438 (15) *
All Directors and Executive
Officers as a Group (22 Persons) 2,710,089 (16) 19.6%
- -----------------------------------
____________________
* Less than 1%
(1) The addresses for all persons listed above are in care of
the Company with the following exceptions: David L. Babson
and Co., Inc., One Memorial Drive, Cambridge, MA 02142-
1300; Palisade Capital Management, L.L.C., One Bridge
Plaza, Suite 695, Fort Lee, NJ 07024; 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 has
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 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 150,000 shares which are subject to immediately
exercisable options held by Mr. Mruz, 53,050 shares held
in a revocable trust, of which both Mr. Mruz and his
spouse are trustees, 450 shares held in Mr. Mruz's
individual retirement account, and 230 shares held in his
spouse's individual retirement account.
(5) Represents 93,667 shares held in a revocable trust for Mr.
Nichols and his spouse, of which both are trustees,
165,468 shares held in the Roy J. Nichols and Susan Mary
Nichols Charitable Remainder Unitrust, of which Mr.
Nichols is the sole trustee, and 159,363 shares held in
the Nichols Charitable Remainder Unitrust No. 2, of which
both Mr. and Mrs. Nichols are trustees.
3
<PAGE>
(6) Includes 333 shares which are subject to immediately
exercisable options held by Ms. Hattox.
(7) Includes 3,500 shares which are subject to immediately
exercisable options held by Dr. DePoy.
(8) Includes 6,500 shares which are subject to immediately
exercisable options held by Dr. Heinisch.
(9) Includes 6,500 shares which are subject to immediately
exercisable options held by General Odom.
(10) Includes 2,000 shares which are subject to immediately
exercisable options held by Mr. Thompson.
(11) Includes 5,000 shares which are subject to immediately
exercisable options held by Mr. Wynn.
(12) Includes 440 shares which are subject to immediately
exercisable options held by Mr. Patterson.
(13) Includes 10,502 shares which are subject to immediately
exercisable options held by Mr. Moule and 300 shares held
directly by Mr. Moule's spouse.
(14) Includes 17,742 shares which are subject to immediately
exercisable options held by Mr. Solley.
(15) Includes 1,501 shares which are subject to immediately
exercisable options held by Mr. Coward.
(16) Includes 225,517 shares which are subject to stock options
exercisable within 60 days, 119,300 shares owned by the
spouses of three officers, 180,000 shares held jointly by
an officer and his spouse, 306,080 shares held in trust by
two officers and their spouses, 165,468 shares held in
trust by an officer who is the sole trustee, 450 shares
held in the individual retirement account of an 0officer,
230 shares held in the individual retirement account of an
officer's spouse, 20 shares held by minor children of an
officer, 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 thirteen (13) by resolution pursuant
to authority granted in the Bylaws of the Company. The Board
of Directors proposes that the thirteen (13) 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, twelve of whom are presently directors
4
<PAGE>
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 52 Chairman of the Board 1976
Michael J. Mruz 53 Chief Executive Officer and Director 1994
Charles A. Leader 47 President, Chief Operating Officer, and Director Nominee -
Roy J. Nichols 60 Senior Vice President and Vice Chairman 1976
Patsy L. Hattox 49 Chief Administrative Officer, Corporate Vice President, 1980
Secretary, and Director
Roger P. Heinisch 60 Director 1984
John R. Wynn 54 Director 1985
William E. Odom 66 Director 1991
James R. Thompson, Jr. 62 Director 1992
Phil E. DePoy 63 Director 1994
Thomas L. Patterson 56 Chairman of Nichols TXEN Corporation and Director 1997
Daniel W. McGlaughlin 62 Director 1998
David Friend 50 Director 1998
</TABLE>
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.
Michael J. Mruz became President of the Company on August 16, 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.
Charles A. Leader became President and Chief Operating Officer of the
Company on November 2, 1998. From 1997 to 1998, Mr. Leader served as President
of Hughes Information Systems, an information systems, training, and
professional services company of Hughes Aircraft Company. While at Hughes, Mr.
Leader served as President of Hughes Information Technology Systems from 1995
to 1997 and as a Transition Executive for Hughes Aircraft Company from 1994 to
1995. From 1984 to 1994, Mr. Leader held the positions of Associate, Senior
Associate, Engagement Manager, Senior Engagement Manager and Principal at
McKinsey & Company, Inc., a management consulting firm.
5
<PAGE>
Dr. Heinisch is formerly Vice President, Engineering, of Alliant
Techsystems, Inc., a defense contractor, having retired in 1998. He was
employed by Alliant Techsystems, Inc. from 1990 to 1998. Dr. Heinisch 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.
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.) Odom has served as 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.
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.
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.
Mr. Patterson is Chairman of the Board of Directors of Nichols TXEN
Corporation, a wholly-owned subsidiary of the Company. 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 and
administrative services company for managed care organizations, from 1989 to
1997. TXEN, Inc., was acquired by the Company on August 29, 1997, when it was
merged into Nichols TXEN Corporation. From 1980 to 1989, Mr. Patterson was
President of SEAKO, Inc., an information technology company for practice
management and managed care systems.
6
<PAGE>
Dr. McGlaughlin is formerly President and Chief Executive Officer of
Equifax, Inc., an information services provider, having retired in 1998. 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.
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 (EIS) 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 hardware manufacturer.
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., Choice Print, Inc., American Business Products, Inc., and
Tool Systems, 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. Mr. Wynn, Dr. DePoy, and General Odom served as members of the
Audit Committee from September 1, 1997, through January 8, 1998. From January
9, 1998, through August 31, 1998, Mr. Wynn, Dr. Heinisch, 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, 1998, the Audit Committee
held two (2) meetings, and all committee members were present. From September
1, 1997, through January 8, 1998, Dr. Heinisch, General Odom and Mr. Thompson
served as members of the Executive Officer Compensation Committee of the Board
of Directors. Dr. Heinisch, Dr. McGlaughlin and Mr. Thompson served as members
of that committee from January 9, 1998, through August 31, 1998. 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,
1998, the Executive Officer Compensation Committee held one meeting. From
September 1, 1997, through August 31, 1998, 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
7
<PAGE>
Employees' Stock Purchase Plan, the Company's 1991 Stock Option Plan, the
Company's 1997 Stock Option Plan and the Company's Non-Employee Officer and
Director Stock Option Plan. During the fiscal year ended August 31, 1998, the
Stock Option Committee held no meetings, but took action by unanimous written
consent on nine (9) occasions. During the fiscal year ended August 31, 1998,
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, 1998, the
Executive Committee held no meetings.
During the fiscal year ended August 31, 1998, 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, 1998, the
Nominating Committee held no meetings. The Nominating Committee adopted action
by unanimous written consent of all committee members on October 20, 1998.
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, 1998, the Board of Directors held
four (4) meetings, and all directors were present at such. The Board of
Directors also adopted action by unanimous written consent of all directors on
four (4) occasions during the fiscal year ended August 31, 1998.
EXECUTIVE COMPENSATION
Compensation Summary
- --------------------
The following table summarizes for the last three completed fiscal years
the compensation of Chris H. Horgen and Michael J. Mruz, who served as Chairman
of the Board and Chief Executive Officer, respectively, of the Company during
the last fiscal year, and the three other most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 for the year
ended August 31, 1998 (the "Named Executive Officers").
8
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term
Annual Compensation Compensation
------------------- -------------
Shares of
Stock
Other Underlying
Name and Annual Options All Other
Principal Position Year Salary Bonus Compensation Awarded Compensation
- -------------------------- ---- ------ ----- ------------ ---------- ------------
(1) (2) (3)
<S> <C> <C> <C> <C> <C> <C>
Chris H. Horgen, Chairman 1998 $260,477 $140,000(4) - N/A $15,168
of the Board 1997 $243,689 $109,000 - N/A $12,874
1996 $227,300 $115,000 - 105,000 $13,673
Michael J. Mruz(5), 1998 $245,921 $140,000(4) - N/A $15,307
Chief Executive Officer, 1997 $221,550 $109,000 - N/A $12,793
President, Chief Operating 1996 $221,069 $115,000 $44,105(6) N/A $13,144
Officer and Officer
James C. Moule, 1998 $198,584 $50,000(4) - N/A $14,913
President, Navy and Air 1997 $183,590 $60,000 - 9,000 $12,771
Force Business Operations 1996 $158,946 $60,000 - 9,000 $14,246
Michael W. Solley, 1998 $161,205 $75,000(4) - N/A $14,665
Executive Vice President 1997 $150,940 $60,000 - N/A $12,734
1996 $125,695 $90,000 - 18,000 $13,382
James M. Coward, 1998 $154,327 $55,000(4) - N/A $14,063
Corporate Vice President and 1997 $141,828 $44,000 - N/A $12,906
Chief Marketing Officer 1996 $127,471 $55,000 - 12,000 $13,950
</TABLE>
(1) Includes the following amounts deferred by the Named
Executive Officers under the Company's Retirement Plan:
Fiscal Year Ended August 31
------------------------------
Name 1996 1997 1998
- ---- ---- ---- ----
Chris H. Horgen $10,583 $ 9,500 $10,000
Michael J. Mruz 9,500 9,500 10,000
James C. Moule 8,758 12,333 9,363
Michael W. Solley 4,341 4,220 3,216
James M. Coward 7,301 13,393 9,514
9
<PAGE>
Also includes the following amounts deferred by the Named Executive
Officers under the Company's Cafeteria Plan:
Fiscal Year Ended August 31
------------------------------
Name 1996 1997 1998
- ---- ---- ---- ----
Chris H. Horgen $1,164 $1,317 $2,939
Michael J. Mruz 1,018 992 2,000
James C. Moule 1,458 2,627 4,114
Michael W. Solley 1,237 1,273 1,033
James M. Coward 2,227 2,539 3,240
(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 to the
Company's Retirement Plan and forfeiture allocations under that retirement
plan in fiscal years ended August 31, 1996, 1997 and 1998 for the benefit
of the Named Executive Officers.
(4) Bonus amounts paid in fiscal year 1999 for services rendered in fiscal
year 1998.
(5) 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.
(6) Moving expenses associated with Mr. Mruz's relocation to Huntsville.
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.
10
<PAGE>
Information concerning the stock options granted during the last fiscal
year to the Named Executive Officers is as follows:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR ENDED AUGUST 31, 1998
--------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
- --------------------------------------------------------------------------------------------------- ---------------------
Percent of
Number of Total Options Grant
Securities Granted to Exercise Date Option
Type of Underlying Employees Price Per Market Expiration
Name Option Options Granted in Fiscal Year Share Price Date 5% 10%
- ---- ------- --------------- --------------- ---------- ------ ---------- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Mruz Incentive(1) 20,000 4.35% $25.00 $25.00 09/02/02 $138,141 $305,255
Michael W. Solley Incentive(1) 8,000 1.74% $23.50 $23.50 11/28/02 $51,941 $114,776
James M. Coward Incentive(1) 8,000 1.74% $23.50 $23.50 11/28/02 $51,941 $114,776
</TABLE>
- ------------------
*Less than 1%
(1) 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 Options
grants, exceeds such maximum, the Incentive Option will be treated as a
non-statutory option to the extent of such excess.
No Incentive Option is exercisable, either in whole or in part, prior to
twenty-four (24) months 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.
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, 1998, of the unexercised stock options held by the
Named Executive Officers under the Company's two stock option plans:
11
<PAGE>
<TABLE>
AGGREGATED FISCAL YEAR OPTION EXERCISES AND STOCK OPTION
VALUES AT AUGUST 31, 1998
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year at Fiscal Year End(2)
Number of Shares
Acquired On Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------------- ----------- ----------- ------------- ----------- -------------
(1)
<S> <C> <C> <C> <C> <C> <C>
Chris H. Horgen 35,000 $437,500 N/A 35,000 N/A $275,625
Michael J. Mruz N/A N/A 150,000 20,000 $2,018,250 N/A
James C. Moule 1,534 $26,803 10,502 9,001 $59,310 $15,104
Michael W. Solley 8,511 $140,520 17,742 25,002 $153,501 $80,790
James M. Coward 7,530 $101,357 N/A 21,000 N/A $36,285
</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 $20.125
per share closing market price of the Common Stock on August 31, 1998,
as quoted on the Nasdaq National Market.
Compensation of Directors
- -------------------------
In the fiscal year ended August 31, 1998, directors of the Company,
other than those who also served as officers of the Company, received a
director's fee of $11,000 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.
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 9,
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
12
<PAGE>
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 upon 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 and 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, 1998, 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 $23.375.
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. 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 commenced 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.
On November 2, 1998, the Company entered into an Employment Agreement
(the "Agreement") with Charles A. Leader to serve as President and Chief
Operating Officer of the Company. The Agreement is for a two-year term and
thereafter automatically renews on a year-to-year basis. The Agreement
provides that Mr. Leader will be paid an annual salary of $250,000, subject to
increases as authorized by the Company. He may be awarded discretionary
13
<PAGE>
performance bonuses. Pursuant to the Agreement, on the date of his employment,
the Company granted Mr. Leader incentive stock options to purchase 14,633
shares of Common Stock and non-statutory stock options to purchase 75,367
shares 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 1997 Stock Option Plan and are subject to all the terms of
that plan. The employment of Mr. Leader will terminate upon his death or
disability, upon 60 days' prior written notice by either party, or for good
cause. If Mr. Leader 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 which will be paid over the six month period
commencing on 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, 1997, through January 8, 1998, Dr. Heinisch, Mr. Thompson
and General Odom served as members of the Executive Officer Compensation
Committee of the Board of Directors. Dr. Heinisch, Dr. McGlaughlin and Mr.
Thompson served as members of that committee from January 9, 1998, through
August 31, 1998. 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 stock option
plans and the Non-Employee Officer and Director Stock Option Plan, is
appointed by the Board of Directors. From September 1, 1997, through August
31, 1998, 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, 1998, the
Stock Option Committee awarded a total of 460,040 stock options, 99,500 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, 1998, 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. Responsibility for determination of
the compensation of other executive officers was delegated to Mr. Horgen and
Mr. Mruz by the Board.
14
<PAGE>
In establishing the compensation of Mr. Horgen and Mr. Mruz for the
fiscal year that began September 1, 1997, the Executive Officer 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 Executive Officer 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, 1998, the Stock Option Committee awarded a total
of 460,040 stock options, of which 99,500 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.
<TABLE>
<CAPTION>
Executive Officer Stock Option
Compensation Committee Committee
- ----------------------- ------------
<S> <C> <C>
Roger P. Heinisch Phil E. DePoy Chris H. Horgen, Chairman of the Board
James R. Thompson, Jr. James R. Thompson, Jr. Michael J. Mruz, Chief Executive Officer and Director
Daniel W. McGlaughlin
William E. Odom
</TABLE>
15
<PAGE>
Performance Graph
- -----------------
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, 1998.
COMPARATIVE OF FIVE-YEAR TOTAL RETURNS
NICHOLS RESEARCH CORPORATION, S&P 500, S&P SOFTWARE AND SERVICES
(Performance Results Through 8/31/98)
Measurement Period (Fiscal S&P 500 S&P Software
Year Ended August 31) NRES Index and Services
- --------------------------- -------- ------- ------------
Measurement Pt - 8/31/93 $100.00 $100.00 $100.00
1994 $ 96.00 $106.00 $128.00
1995 $148.00 $129.00 $188.00
1996 $258.00 $156.00 $242.00
1997 $306.00 $219.00 $440.00
1998 $242.00 $264.00 $515.00
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, 1993, 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.
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
16
<PAGE>
Directors has adopted a resolution providing that the Company will not enter
into leases or other transactions with officers, directors, principal
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 1998, 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.
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 1998 by the Company to that
firm did not exceed 5% of the gross revenues of that 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 a 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, 1998, 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 4 that was filed late by Roger P.
Heinisch, Director, which reported one (1) transaction.
PROPOSAL 2
AMENDMENT TO INCREASE NUMBER OF SHARES ISSUABLE
UNDER THE NICHOLS RESEARCH CORPORATION
1988 EMPLOYEES' STOCK PURCHASE PLAN
Description of Proposed Amendment
- ---------------------------------
On August 20, 1998, the Board of Directors adopted the following
Amendment to the Nichols Research Corporation 1988 Employees' Stock Purchase
Plan (the "Stock Purchase Plan") to increase the number of shares which may be
issued upon exercise of options under the Stock Purchase Plan by 1,000,000
shares of the Company's Common Stock:
Effective upon approval by the shareholders of the Company, the
first sentence of Section 4.6 of the Plan is amended to increase by
1,000,000 shares the aggregate number of shares which may be issued
17
<PAGE>
pursuant to option exercises under the Plan, to 1,769,999 shares of
Capital Stock.
The Amendment to the Stock Purchase Plan was adopted in order to ensure
that sufficient shares of Common Stock would be available for purchase by
employees of the Company. The Amendment will be effective upon approval of the
shareholders.
The Board of Directors recommends a vote FOR Proposal 2.
Current Plan Features
- ---------------------
The Stock Purchase Plan is designed to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code. The Stock
Purchase Plan is administered by the Stock Option Committee of the Board of
Directors (the "Committee").
The Stock Purchase Plan covers 769,999 shares of the Company's Common
Stock. All regular, full-time employees of the Company and such subsidiaries
as are designated by the Board are eligible for an option under the Stock
Purchase Plan. On each March 1, June 1, September 1, and December 1, each
eligible employee is granted a nontransferable option to purchase Common Stock
on the last day of the option period. Option periods are three month periods
beginning on March 1, June 1, September 1, and December 1, and ending on the
next May 31, August 31, November 30, or February 28, respectively. Options
expire at the end of each option period. An employee may exercise the option
granted to him only by authorizing payroll deductions. As of the last day of
the option period, the amount of payroll deductions during such option period
are used to purchase whole shares of Common Stock under the employee's option.
The price for Common Stock purchased under each option is 85% of its fair
market value on the last day of the option period. The market value of the
Company's Common Stock was $23.50 at November 30, 1997; $26.625 at February 28,
1998; $24.00 at May 31, 1998; and $20.125 at August 31, 1998.
The grant of options to an employee and his right to purchase shares are
subject to certain limitations in the Stock Purchase Plan. An employee may not
be granted an option if the employee would own (as determined under the
Internal Revenue Code) 5% or more of the voting power or value of all classes
of stock of the Company or any of its subsidiaries immediately after the option
is granted, or if options under the Stock Purchase Plan or other plans
qualified under the same provision of the Internal Revenue Code would result
during any calendar year in the purchase of shares having an aggregate fair
market value of more than $25,000. Further, an employee may not purchase in an
option period more than the number of shares equal to 10% of his annual basic
rate of compensation divided by 85% of the fair market value of the Common
Stock, both determined on the last day of the option period.
The grant or exercise of an option under the Stock Purchase Plan will
not have a tax impact on the employee or the Company. If the employee disposes
of the Common Stock acquired upon the exercise of the option after at least two
years from the date of grant and one year from the date of exercise, then the
employee must treat as ordinary income the amount by which the lesser of (1)
the fair market value of the Common Stock at the time of disposition, or (2)
the fair market value of the Common Stock at the date of grant exceeds the
18
<PAGE>
exercise price. Any gain above this amount of ordinary income will be treated
as long-term capital gain. If an employee holds Common Stock at the time of
the employee's death, the holding period requirements are automatically deemed
to have been satisfied and ordinary income must be realized by the employee in
the amount by which the lesser of (1) the fair market value of the Common Stock
at the time of death, or (2) the fair market value of the Common Stock at the
date of grant exceeds the exercise price. The Company will not be allowed a
deduction if the holding period requirements are satisfied.
If an employee disposes of Common Stock before the expiration of two
years from the date of grant and one year from the date of exercise, then the
employee must treat as ordinary income the excess of the fair market value of
the Common Stock on the date of exercise of the option over the exercise price.
Any additional gain will be treated as long-term or short-term capital gain,
depending upon whether the Common Stock was held for more than one year after
the date of exercise. The Company will be allowed a deduction equal to the
amount of ordinary income recognized by the employee.
Plan Benefits to be Received
- ----------------------------
The benefits or amounts that will be received by or allocated to the
Named Executive Officers, all other current executive officers, and all other
employees who are not executive officers under the Stock Purchase Plan are not
determinable because the purchase price for the Common Stock under the Stock
Purchase Plan is based upon the fair market value of the Common Stock in future
periods, which cannot be determined at this time.
PROPOSAL 3
AMENDMENT TO CHANGE EXERCISE PRICE OF OPTIONS
ISSUED UNDER THE NICHOLS RESEARCH CORPORATION
1988 EMPLOYEES' STOCK PURCHASE PLAN
Description of Proposed Amendment
- ---------------------------------
On November 5, 1998, the Board of Directors adopted the following
Amendment to the Nichols Research Corporation 1988 Employees' Stock Purchase
Plan (the "Stock Purchase Plan") to change the exercise price of options
issued under the Stock Purchase Plan to 85% of the fair market value of the
Common Stock on the first day of the Option Period or the last day of the
Option Period, whichever is less:
Subject to shareholder approval, effective March 1, 1999, for any
Option Period, the exercise price of each Option shall be the lesser of:
(a) 85% of the fair market value of the Stock on the first day of
the Option Period, or
(b) 85% of the fair market value of the Stock on the last day of
the Option Period.
19
<PAGE>
The Amendment to the Stock Purchase Plan was adopted in order to permit
employees to purchase Common Stock at the lowest price permissible under the
Internal Revenue Code. The Amendment will be effective March 1, 1999, if
approved by the shareholders.
The Board of Directors recommends a vote FOR Proposal 3.
Current Plan Features
- ---------------------
See discussion under Proposal 2 above.
Plan Benefits to be Received
- ----------------------------
The benefits or amounts that will be received by or allocated to the
Named Executive Officers, all other current executive officers, and all other
employees who are not executive officers under the Stock Purchase Plan are not
determinable because the purchase price for the Common Stock under the Stock
Purchase Plan is based upon the fair market value of the Common Stock in future
periods, which cannot be determined at this time.
PROPOSAL 4
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, 1999,
and to perform other appropriate accounting services. Such appointment 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 4.
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 1999 Proxy
Materials no later than August 9, 1999.
20
<PAGE>
OTHER
Management does not know of any other matters to be presented at the
Meeting for action byshareholders. 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 7, 1998
21
<PAGE>
NICHOLS RESEARCH CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
January 14, 1999
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 14, 1999,
or any adjournment(s) thereof. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, and 4.
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.
(Continued, and to be marked, dated and signed, on the other side)
<PAGE>
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 and 4.
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, Charles A. Leader, 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 Amendment to the Nichols Research Corporation 1988
Employees' Stock Purchase Plan to increase the number of shares
thereunder by 1,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
3. Approval of the Amendment to the Nichols Research Corporation 1988
Employees' Stock Purchase Plan to change the exercise price of options
issued under that plan to 85% of the fair market value of the Common
Stock on the first day of the Option Period or the last day of the
Option Period, whichever is less.
/ / FOR / / AGAINST / / ABSTAIN
4. Ratification of Ernst & Young LLP as the independent public
accountants of the Company.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
<PAGE>
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:____________________, 199__
____________________________________________
(Signature)
____________________________________________
(Signature if held jointly)
PLEASE SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
