<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 1998
OR
( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _____________
To _____________
_____________________
Nichols Research Corporation
Commission File Number 0-15295
(Exact name of registrant as specified in its charter)
_____________________
DELAWARE 63-0713665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
4040 Memorial Parkway, South
Huntsville, Alabama 35802-1326
(205) 883-1140
(Address, including zip code, of principal offices)
_____________________
NO CHANGE
(Former name, address and fiscal year if changed since last
report)
_____________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO __
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
COMMON STOCK, $.01 PAR VALUE
13,186,101 SHARES OUTSTANDING ON February 28, 1998
_____________________
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED FEBRUARY 28, 1998
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Income for the Three Months and Six Months Ended
February 28, 1998 and February 28, 1997 (Unaudited)
Balance Sheets as of February 28, 1998 and August 31, 1997
(Unaudited)
Statements of Changes in Stockholders' Equity for the Six
Months Ended February 28, 1998 and February 28, 1997
(Unaudited)
Statements of Cash Flows for the Six Months Ended February 28,
1998 and February 28, 1997 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
NICHOLS RESEARCH CORPORATION
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months Ended For the Six Months Ended
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
------------------------------------------------------
(amounts in thousands except share data)
Revenues................ $ 87,532 $ 91,974 $ 171,481 $ 174,821
Costs and expenses:
Direct and allocable
costs............... 72,677 81,871 142,632 154,519
General and
administrative...... 8,132 5,217 15,695 10,509
Amortization of
intangibles......... 1,137 509 2,176 1,019
------------------------------------------------------
Total costs and
expenses.......... 81,946 87,597 160,503 166,047
------------------------------------------------------
Operating profit........ 5,586 4,377 10,978 8,774
Other income (expense):
Interest expense...... (98) (268) (188) (336)
Other income, principally
interest............ 305 221 582 483
Equity in earnings of
unconsolidated
affiliates.......... 160 143 290 280
Minority interest in
consolidated
subsidiaries........ (163) (110) (494) (230)
------------------------------------------------------
Income before income
taxes................. 5,790 4,363 11,168 8,971
Income taxes............ 2,195 1,583 4,244 3,256
------------------------------------------------------
Net income $ 3,595 $ 2,780 $ 6,924 $ 5,715
======================================================
Earnings per common
share................. $ .27 $ .24 $ .53 $ .49
======================================================
Earnings per common
share-assuming
dilution.............. $ .26 $ .23 $ .51 $ .47
======================================================
Weighted average number
of common shares........ 13,135,241 11,621,652 13,097,064 11,585,322
======================================================
Weighted average number
of common and common
equivalent shares....... 13,609,697 12,336,505 13,595,392 12,264,837
======================================================
NOTE: The Company has not declared or paid dividends in any of the
periods presented. All references to the number of shares and
per share amounts have been restated to reflect the effect of
a three-for-two stock split effective October 21, 1996.
<PAGE>
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
February 28, August 31,
1998 1997
--------------------------------
(amounts in thousands)
ASSETS
Current assets:
Cash and temporary cash investments.... $ 24,113 $ 23,354
Accounts receivable.................... 87,491 93,425
Deferred income taxes.................. 2,102 2,102
Other.................................. 3,718 3,311
--------------------------------
Total current assets................ 117,424 122,192
Long-term investments.................... 2,679 3,738
Property and equipment:
Computers and related equipment........ 26,067 21,956
Furniture, equipment and improvements.. 10,664 9,666
Equipment - contracts.................. 5,771 5,771
--------------------------------
42,502 37,393
Less accumulated depreciation.......... 21,334 18,715
--------------------------------
Net property and equipment.......... 21,168 18,678
Goodwill and other intangibles (net of
accumulated amortization).............. 46,520 48,130
Software development costs (net of
accumulated amortization).............. 4,241 4,271
Investment in affiliates................. 9,606 8,363
Other assets............................. 1,167 783
--------------------------------
Total assets............................. $ 202,805 $ 206,155
================================
NOTE: All references to the number of shares and per share amounts
have been restated to reflect the effect of a three-for-two
stock split effective October 21, 1996.
<PAGE>
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) CONTINUED
February 28, August 31,
1998 1997
-------------------------------
(amounts in thousands except
per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 20,682 $ 28,448
Accrued compensation and benefits...... 14,856 11,388
Income taxes payable................... 999 369
Current maturities of long-term debt... 761 761
Borrowings on line of credit........... - 10,000
Deferred revenue....................... 5,224 3,114
Other.................................. 52 1,534
-------------------------------
Total current liabilities............ 42,574 55,614
Deferred income taxes.................... 1,816 1,816
Long-term debt:
Industrial development bonds........... 1,335 1,558
Long-term notes........................ 2,198 2,467
-------------------------------
Total long-term debt................. 3,533 4,025
Minority interest in consolidated
subsidiaries........................... 801 307
Stockholders' equity:
Common stock, par value $.01 per share
Authorized - 20,000,000 shares
Issued - 13,354,601 and 13,137,657
shares, respectively............... 133 131
Additional paid-in capital............. 92,777 90,015
Retained earnings...................... 62,459 55,535
Less cost of treasury stock-168,500
shares............................... (1,288) (1,288)
-------------------------------
Total stockholders' equity......... 154,081 144,393
-------------------------------
Total liabilities and stockholders
equity................................. $ 202,805 $ 206,155
===============================
NOTE: All references to the number of shares and per share amounts have
been restated to reflect the effect of a three-for-two stock split
effective October 21, 1996.
<PAGE>
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Treasury Stockholder's
Shares Amount Capital Earnings Stock Equity
-------------------------------------------------------------------
(amounts in thousands except share data)
For the Three Months Ended February 28, 1998
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1997 13,137,657 $ 131 $ 90,015 $ 55,535 $ (1,288) $144,393
Exercise of stock options 167,523 2 1,709 - - 1,711
Employee stock purchases 49,421 - 1,053 - - 1,053
Net income - - - 6,924 - 6,924
-------------------------------------------------------------------
Balance,February 28, 1998 13,354,601 $ 133 $ 92,777 $ 62,459 $ (1,288) $154,081
===================================================================
For the Three Months Ended February 28, 1997
--------------------------------------------
Balance, August 31, 1996 11,651,018 $ 117 $ 59,071 $ 55,061 $ (1,288) $112,961
Exercise of stock options 167,594 2 1,504 - - 1,506
Employee stock purchases 34,742 - 734 - - 734
Net income - - - 5,715 - 5,715
-------------------------------------------------------------------
Balance, February 28, 1997 11,853,354 $ 119 $ 61,309 $ 60,776 $ (1,288) $120,916
===================================================================
</TABLE>
NOTE: All references to the number of shares and per share amounts have been
restated to reflect the effect of a three-for-two stock split
effective October 21, 1996.
<PAGE>
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended
------------------------
February 28, February 28,
1998 1997
--------------------------
(amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 6,924 $ 5,715
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation.............................. 2,619 1,884
Amortization.............................. 2,176 1,019
Equity in earnings of unconsolidated
affiliates.............................. (290) (280)
Minority interest......................... 494 315
Changes in assets and liabilities net
of effects of acquisitions:
Accounts receivable....................... 5,934 (15,386)
Other assets.............................. (883) (2,370)
Accounts payable.......................... (7,766) 1,792
Accrued compensation and benefits......... 3,468 1,259
Income taxes payable...................... 630 (238)
Other current liabilities................. 628 (351)
--------------------------
Total adjustments......................... 7,010 (12,356)
--------------------------
Net cash provided (used) by operating
activities............................ 13,934 (6,641)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......... (5,109) (2,047)
Purchase long-term investments.............. (100) (75)
Purchase capitalized software............... (355) (362)
Payment for investment in affiliates........ (1,028) (4,092)
Proceeds from long-term investments......... 1,145 250
--------------------------
Net cash used by investing activities..... (5,447) (6,326)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...... 2,764 2,240
Payments of long-term debt.................. (492) (538)
Proceeds from borrowings on line of credit.. - 15,000
Payments on line of credit borrowings....... (10,000) (15,000)
--------------------------
Net cash provided (used) by financing
activities.............................. (7,728) 1,702
--------------------------
<PAGE>
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Six Months Ended
--------------------------
February 28, February 28,
1998 1997
--------------------------
(amounts in thousands)
Net increase (decrease) in cash and
temporary cash investments................ 759 (11,265)
Cash and temporary cash investments
at beginning of period.................... 23,354 21,419
--------------------------
Cash and temporary cash investments at
end of period............................... $ 24,113 $ 10,154
==========================
NON-CASH TRANSACTIONS:
Adjustment to purchase price allocation..... $ - $ 200
<PAGE>
NICHOLS RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 28, 1998
Note 1 - Basis of Presentation
---------------------
The condensed consolidated financial statements (and all other
information in this report) have not been examined by independent
auditors, but in the opinion of the Company, all adjustments,
consisting of the normal recurring accruals necessary for a fair
presentation of the results for the period, have been made. The
condensed consolidated financial statements include the accounts
of Nichols Research Corporation and its majority-owned
subsidiaries and joint ventures. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company's earnings in unconsolidated affiliates and joint
ventures are accounted for using the equity method.
Note 2 - Stock Split
-----------
On October 9, 1996 the Board of Directors declared a three-for-
two stock split which was paid to shareholders of record on
October 21, 1996. The split was effected on November 4, 1996 by
a stock dividend of one share for every two shares of common
stock outstanding, with cash paid in lieu of fractional shares
based on the stock value on record date. All references to the
number of shares and per share amounts have been restated to
reflect the effect of the split for all periods presented.
Note 3 - New Pronouncements
------------------
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per
Share. Statement 128 replaced the previously reported primary
and fully diluted earnings per share with earnings per common
share and earnings per common share assuming dilution. Unlike
primary earnings per common share, earnings per common share
excludes any dilutive effects of options, warrants, and
convertible securities. Earnings per common share assuming
dilution is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all
periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
Note 4 - Investment in Affiliates
------------------------
The Company increased its capital investment in Intertech
Management Group, Inc. by approximately $528,000. As of February
28, 1998 the Company holds a 35% interest at an aggregate cost of
approximately $ 5,663,000.
<PAGE>
The Company increased its capital investment in NCCIM, LLC by
$500,000. As of February 28, 1998 the Company holds a 50%
interest at an aggregate cost of approximately $1,345,000.
Note 5 - Line of Credit
--------------
The Company renegotiated its bank line of credit in November,
1997. The agreement provides for unsecured borrowings up to
$100,000,000. The credit agreement provides for interest at
London Interbank Offered Rate (LIBOR) plus a margin ranging from
0.325% to 0.450% and a facility fee, payable quarterly, of
approximately 0.125% on the unused portion of the line of credit.
The short-term commitment agreement ($50,000,000) is renewable
annually and the long-term commitment agreement ($50,000,000) is
renewable in November, 2000. There were no outstanding
borrowings on this line of credit at February 28, 1998.
<PAGE>
Note 6 - Earnings Per Share
------------------
The following table sets forth the computation of earnings per
common share and earnings per common share assuming dilution:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income and income and
income available to
common stockholders and
income available to
common stockholders
after assumed
conversions............... $ 3,595,0000 $ 2,780,000 $ 6,924,000 $ 5,715,000
==========================================================
Denominator:
Denominator for earnings
per common share -
weighted average
common shares............. 13,135,241 11,621,652 13,097,064 11,585,322
Effect of dilutive securities:
Employee stock options...... 474,456 714,853 498,328 679,515
Denominator for earnings per
common share assuming
dilution - adjusted weighted
average common shares
and assumed conversions..... 13,609,697 12,336,505 13,595,392 12,264,837
=======================================================
Earnings per common share..... $ .27 $ .24 $ .53 $ .49
=======================================================
Earnings per common share
assuming dilution........... $ .26 $ .23 $ .51 $ .47
========================================================
</TABLE>
<PAGE>
NICHOLS RESEARCH CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview and Business Environment
- ---------------------------------
The Company is a leading provider of technical and
information technology (IT) services, including information
processing, systems development and systems integration. The
Company provides these services to a wide range of clients,
including the Department of Defense (DoD), other federal
agencies, state and local governments, healthcare and insurance
organizations, and commercial enterprises. The Company's business
strategy consists of three key elements: (i) maintain the
Company's leadership in technology; (ii) apply the Company's
technology to create solutions for new clients; and (iii) make
strategic acquisitions and form alliances to expand the business
of the Company and gain industry knowledge. The Company's
business and financial performance are subject to risks and
uncertainties, including those discussed below.
The Company is organized in four strategic business units,
reflecting the particular market focus of each line of business.
Nichols Federal provides technical services primarily to U.S.
government defense agencies. Nichols InfoFed provides
information and technology services to a variety of governmental
agencies. Nichols InfoTec provides information and technology
services to various commercial clients, other than healthcare or
insurance industry clients. Nichols TXEN provides information
services to clients in the healthcare and insurance industries.
For the six months ended February 28, 1998, the percentage of
total revenues attributable to the four business units were
approximately 60% for Nichols Federal, 20% for Nichols InfoFed,
9% for Nichols InfoTec, and 11% for Nichols TXEN.
Expansion through acquisitions is an important component of
the Company's overall business strategy. The Company has
successfully completed eight strategic acquisitions and alliances
since September 1, 1994. The Company's continued ability to grow
by acquisitions is dependent upon, and may be limited by, the
availability of compatible acquisition candidates at reasonable
prices, the Company's ability to fund or finance acquisitions on
acceptable terms, and the Company's ability to maintain or
enhance the profitability of any acquired business.
As part of the Company's business strategy to enter new
markets, the Company intends to pursue large systems integration
contracts in both the government and commercial markets, although
competition for such contracts is intense and many of the
Company's competitors have greater resources than the Company.
While such contracts are working capital intensive, requiring
large equipment and software purchases to be funded by the
Company before payment from the customer, the Company believes
such contracts offer attractive revenue growth and margin
expansion opportunities for the Company's range of technical
expertise and capabilities.
<PAGE>
The Company's revenues and earnings may fluctuate from
quarter to quarter based on such factors as the number, size and
scope of projects in which the Company is engaged, the
contractual terms and degree of completion of such projects,
expenditures required by the Company in connection with such
projects, any delays incurred in connection with such projects,
employee utilization rates, the adequacy of provisions for
losses, the accuracy of estimates of resources required to
complete ongoing projects, and general economic conditions. Under
certain contracts, the Company is required to purchase, integrate
and deliver to the customer large computer processing systems and
other equipment. Revenues are accrued as costs to deliver these
systems are incurred, and as a result, quarterly revenues will be
impacted by fluctuations related to significant system
integration contracts which occur on a periodic basis depending
on contract terms and modifications.
The Company's services are provided primarily through three
types of contracts: fixed-price, time-and-materials and cost-
reimbursement contracts. Fixed-price contracts require the
Company to perform services under a contract at a stipulated
price. Time-and-materials contracts reimburse the Company for
the number of labor hours expended at an established hourly rate
negotiated in the contract, plus the cost of materials incurred.
Under cost-reimbursement contracts, the Company is reimbursed for
all actual costs incurred in performing the contract to the
extent that such costs are within the contract ceiling and
allowable under the terms of the contract, plus a fee or profit.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS
QUARTERLY REPORT CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED
IN SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS. THESE RISKS AND UNCERTAINTIES ARE DISCUSSED IN MORE
DETAIL IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED AUGUST 31,1997,AND IN THE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
SECTION OF THIS QUARTERLY REPORT. THESE FORWARD-LOOKING STATEMENTS
CAN BE GENERALLY IDENTIFIED AS SUCH BECAUSE THE CONTENT OF THE
STATEMENTS WILL USUALLY CONTAIN SUCH WORDS OF SIMILAR IMPORT.
SIMILARLY, STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE PLANS,
OBJECTIVES, GOALS OR STRATEGIES ARE FORWARD-LOOKING STATEMENTS.
<PAGE>
Results of Operations
- ---------------------
The following tables set forth, for the periods indicated, the
percentage which certain items in the consolidated statements of
income bear to consolidated revenues, and the percentage change
of such items for the periods indicated:
For the Three Months Ended For the Six Months Ended
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
-----------------------------------------------------
Revenues................. 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Direct and allocable
costs................ 83.0 89.0 83.2 88.4
General and
administrative
expenses............. 9.3 5.7 9.1 6.0
Amortization of
intangibles......... 1.3 0.5 1.3 0.6
-----------------------------------------------------
Total costs and
expenses........ 93.6 95.2 93.6 95.0
-----------------------------------------------------
Operating profit......... 6.4 4.8 6.4 5.0
Interest expense......... (0.1) (0.3) (0.1) (0.2)
Other income, principally
interest............... 0.3 0.2 0.3 0.3
Equity in earnings of
unconsolidated
affiliates............. 0.2 0.1 0.2 0.1
Minority interest in
consolidated
subsidiaries........... (0.2) (0.1) (0.3) (0.1)
-----------------------------------------------------
Income before income
taxes.................. 6.6 4.7 6.5 5.1
Income taxes............. 2.5 1.7 2.5 1.8
-----------------------------------------------------
Net income 4.1% 3.0% 4.0% 3.3%
=====================================================
The table below presents contract award and backlog data for the periods
indicated:
February 28, February 28,
1998 1997
----------------------------
(amounts in thousands)
Contract award amount............. $ 98,041 $ 391,261
Backlog (with options)............ $ 1,155,036 $ 1,246,000
Backlog (without options)......... $ 485,103 $ 542,958
<PAGE>
NICHOLS RESEARCH CORPORATION
COMPARISON OF OPERATING RESULTS FOR FISCAL SECOND QUARTER 1998
WITH FISCAL SECOND QUARTER 1997
REVENUES. Revenues decreased $4.4 million (4.8%) for the
three months and $3.3 million (1.9%) for the six months ended
February 28, 1998 as compared to the three months and six months
ended February 28, 1997. Nichols Federal revenue increased 10%
($10 million) for the six months ended February 28, 1998 compared
to the six months ended February 28, 1997 primarily as a result
of continued growth in existing contract base. Nichols InfoFed
revenues decreased 50% ($33 million) for the six months ended
February 28, 1998 as compared to the six months ended February
28, 1997 primarily due to the timing of significant hardware and
software purchases related to systems integration contracts. An
increase in contract activity on systems integration contracts is
expected during the next six months. Nichols InfoTec revenues
increased 90% ($7 million) for the six months ended February 28,
1998 as compared to the six months ended February 28, 1997
primarily as a result of SAP software sales and integration
services. Nichols TXEN revenue more than doubled ($13 million
increase) during the six months ended February 28, 1998 as
compared to the six months ended February 28, 1997 primarily as a
result of the TXEN, Inc. acquisition completed in August 1997.
OPERATING PROFIT. Operating profit increased $1.2 million
(27.6%) for the three months and $2.2 million (25.1%) for the six
months ended February 28, 1998 as compared to the three months
and six months ended February 28, 1997. Operating margin for the
six months ended February 28, 1998 was 6.4% as compared to 5.0%
for the six months ended February 28, 1997.
Nichols Federal operating profit increased 20% ($0.9 million)
for the six months ended February 28, 1998 both as a result of
increased contract activity and because in fiscal year 1997
operating profit was adversely affected by the completion of two
significant contracts. Nichols InfoFed operating profit
decreased 29% ($1.0 million) for the six months ended February
28, 1998 as a result of a decrease in systems integration
hardware and software purchases, while margins on existing work
improved. Nichols InfoTec operating profit increased 125% ($0.6
million) primarily as a result of increased SAP software sales
and integration. Nichols TXEN operating profit increased
substantially ($2 million) for the six months ended February 28,
1998 primarily as a result of the contribution from the
acquisition of TXEN, Inc. completed in August 1997.
<PAGE>
Costs and expenses were 93.6% of revenues for the three
months and six months ended February 28, 1998 as compared to
95.2% for the three months and 95.0% for the six months ended
February 28, 1997. The decrease in direct and allocable costs as
a percentage of revenues was primarily the result of significant
hardware and software purchases for systems integration
contracts. The $5.2 million (49.3%) increase in general and
administrative expenses is primarily a result of the acquisition
of TXEN, Inc. completed in August 1997. Amortization of
intangibles increased $1.2 million (113.5%) primarily as a result
of the amortization of intangibles recorded for the acquisition
of TXEN, Inc. completed in August 1997.
OTHER INCOME (EXPENSE). Other income (expense) increased
$218,000 for the three months and decreased $7,000 for the six
months ended February 28, 1998 as compared to the three months
and six months ended February 28, 1997. Other income includes
equity in earnings of unconsolidated affiliates and interest
income; other expense includes interest expense and minority
interest. Interest income is from the investment of the
Company's cash reserves. Substantially all available cash is
invested in interest-bearing accounts or fixed income
instruments. Interest expense is primarily from the long-term
borrowings of the Company and the commitment fee on unused line
of credit.
Equity in earnings of unconsolidated affiliates for the six
months ended February 28, 1998 primarily represents the Company's
share of the earnings of NCCIM, LLC a joint venture, 50% of which
is owned by the Company; while the comparable amount for the six
months ended February 28, 1997 represented the Company's share of
earnings of TXEN, Inc. As of August 1997, TXEN, Inc. became a
wholly-owned subsidiary of the Company.
Minority interest primarily represents the minority partner's
share of earnings of Nichols ENTEC, LLC a joint venture, 60% of
which is owned by the Company. The increase in minority interest
of $264,000 for the six months ended February 28, 1998 as
compared to the six months ended February 28, 1997 is primarily
the result of an increase in SAP software and implementation
services in the Nichols InfoTec unit.
INCOME TAXES. Income taxes as a percentage of income before
taxes was 38.0% for the six months ended February 28, 1998 as
compared to 36.2% for the six months ended February 28, 1997.
The increase is primarily a result of the differences between
financial and taxable income related to the amortization of
intangibles.
NET INCOME . Net income increased $0.8 million (29.3%) for
the three months and $1.2 million (21.2%) for the six months
ended February 28, 1998 as compared to the three months and six
months ended February 28, 1997. The increase is a result of the
matters discussed above.
<PAGE>
EARNINGS PER SHARE ASSUMING DILUTION. Earnings per share
assuming dilution for the three months and six months ended
February 28, 1998 were $0.26 and $0.51 as compared to $0.23 and
$0.47 for three months and six months ended February 28, 1997, an
increase of 17.2% and 9.3%, respectively. Net income increased
21.2% ($1.2 million), while weighted average common shares and
common equivalent shares increased 10.8% (1,330,555 shares) for
the six months ended February 28, 1998 as compared to the six
months ended February 28, 1997.
Liquidity And Capital Resources
- -------------------------------
Historically, the Company's positive cash flow from
operations and available credit facilities have provided adequate
liquidity and working capital to fully fund the Company's
operational needs and support the acquisition program. Working
capital was $74.8 million and $76.0 million at February 28, 1998
and 1997, respectively. Operating activities provided cash of
$13.9 million for the six months ended February 28, 1998 and used
cash of $6.6 million for the six months ended February 28, 1997.
Investing activities used cash of $5.4 million for the six months
ended February 28, 1998 and $6.3 million for the six months ended
February 28, 1997. Financing activities used cash of $7.7
million for the six months ended February 28, 1998 and provided
cash of $1.7 million for the six months ended February 28, 1997.
Cash provided by operating activities increased $20.6 million
for the six months ended February 28, 1998 as compared to the six
months ended February 28, 1997. The primary difference is the
result of a temporary increase in Accounts Receivable at February
28, 1997 due to systems integration contract invoices.
Cash used for investing activities was $5.4 million for the
six months ended February 28, 1998. Purchases of property and
equipment were $5.1 million and $2.0 million for the six months
ended February 28, 1998 and 1997, respectively. The Company
realized net proceeds of $1.1 million from the maturity of long-
term investments. An additional $0.5 million capital
contribution was made to Intertech Management Group, Inc. in the
second fiscal quarter and $0.5 million to NCCIM, LLC in the first
fiscal quarter.
Cash used for financing activities was $7.7 million for the
six months ended February 28, 1998. The primary use of cash for
financing activities was during the first fiscal quarter of 1998
for the repayment of $10 million indebtedness under the bank line
of credit. The Company realized proceeds from the sale of common
stock of $2.8 million and $2.2 million for the six months ended
February 28, 1998 and 1997, respectively.
<PAGE>
The Company renegotiated its bank line of credit in November,
1997. The agreement provides for unsecured borrowings up to
$100,000,000. The credit agreement provides for interest at
London Interbank Offered Rate (LIBOR) plus a margin ranging from
0.325% to 0.450% and a facility fee, payable quarterly, of
approximately 0.125% on the unused portion of the line of credit.
The short-term commitment agreement ($50,000,000) is renewable
annually and the long-term commitment agreement ($50,000,000) is
renewable in November, 2000. There were no outstanding
borrowings on this line of credit at February 28, 1998.
The Company is regularly evaluating potential acquisition
candidates and expects to complete other transactions this fiscal
year. The purchase price allocation for TXEN, Inc. was finalized
during the first fiscal quarter of 1998. The $29.9 million was
allocated as follows; $15.4 million to goodwill, $12.7 million
to other intangibles and $1.8 million to capitalized software
development. Goodwill and other intangibles of $27.4 million are
being amortized using the straight-line method over an estimated
useful life of twenty years. Other intangibles of $0.7 million
are being amortized using the straight-line method over an
estimated useful life of seven years. The amount allocated to
capitalized software development is being amortized using the
straight-line method over an estimated useful life of five years.
The Company continues to actively pursue contracts for
information system development and computer system integration
activities, which could require the Company to acquire
substantial amounts of computer hardware for resale or lease to
customers. The timing of payments to suppliers and payments from
customers under the Company's system integration contracts could
cause cash flows from operations to fluctuate from period to
period.
The Company believes that its existing capital resources,
together with available borrowing capacity, will be sufficient to
fund operating needs, finance acquisitions of property and
equipment, and make strategic acquisitions, if appropriate.
Recent Accounting Pronouncements
- --------------------------------
In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement No. 128, EARNINGS PER SHARE. The overall
objective of Statement No. 128 is to simplify the calculation of
earnings per share (EPS) and achieve comparability with recently
issued international accounting standards. The Company has
reported using the new EPS basis in the second quarter ending
February 28, 1998 and has restated all prior period EPS amounts
to conform to the provisions of Statement No. 128.
Effects of Inflation
- --------------------
Substantially all contracts awarded to the Company have been
based on proposals which reflect estimated cost increases due to
inflation. Historically, inflation has not had a significant
impact on the Company.
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On January 8, 1998, the annual meeting of the Company's
stockholders was held at the Corporate Headquarters in
Huntsville, Alabama. Proxies were solicited and cast by the
Company's transfer agent, ChaseMellon Shareholder Services, New
York, New York. Matters put to vote and acted upon were the
proposal to elect Directors to the Board of Directors, adoption
of the Nichols Research Corporation 1997 Stock Option Plan,
amendment to the Company's Certification of Incorporation to
increase authorized shares of stock, adoption of the Nichols
Research Corporation 1997 Stock Bonus Plan, ratify appointment of
Ernst & Young LLP.
All directors were elected for a term of one year and will serve
until the next annual meeting. Directors elected were as
follows:
For Withheld
---------- --------
Chris H. Horgen 11,368,098 298,067
Michael J. Mruz 11,363,320 302,845
Roy J. Nichols 11,371,633 294,532
Patsy L. Hattox 11,368,741 297,424
Roger P. Heinisch 11,403,074 263,091
John R. Wynn 11,363,525 302,640
William E. Odom 11,402,085 264,080
James R. Thompson, Jr. 11,403,064 263,101
Phil E. DePoy 11,403,074 263,091
Thomas L. Patterson 11,369,564 296,601
David Friend 11,403,074 263,091
Daniel W. McGlaughlin 11,177,415 488,750
The Nichols Research Corporation 1997 Stock Option Plan was
approved. Voting for approval were 8,144,440 shares, voting
against were 2,302,580 shares, and 48,302 shares abstained.
The Amendment to the Company's Certificate of Incorporation was
amended to increase the authorized shares of common stock.
Voting for amendment were 11,549,345 shares, voting against
101,037 shares, and 15,783 shares abstained.
The Nichols Research Corporation 1997 Stock Bonus Plan was
approved. Voting for approval were 9,531,127 shares, voting
against 888,578 shares, and 75,617 shares abstained.
Ernst & Young, LLP was ratified to serve as the Company's
independent auditors for the fiscal year ending August 31, 1998.
Voting for ratification were 11,541,031 shares, voting against
were 32,336 shares and 92,798 shares abstained.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits.
Exhibit No. Description
3.1 Certificate of Amendment to the Certificate of
Incorporation of Nichols Research Corporation
10.1 Nichols Research Corporation 1997 Stock Option Plan
10.2 Nichols Research Corporation 1997 Stock Bonus Plan
10.3 Nichols Research Corporation Supplemental Retirement
Benefit Plan between Nichols Research Corporation
and Michael J. Mruz
10.4 Nichols Research Corporation Supplemental Retirement
Benefit Plan between Nichols Research Corporation
and Chris H. Horgen
27 Financial Data Schedule
(b) The Company has not filed any reports on Form 8-K for the three
months ended February 28, 1998.
<PAGE>
NICHOLS RESEARCH CORPORATION
SIGNATURES
MANAGEMENT REPRESENTATION
-------------------------
The accompanying unaudited Consolidated Balance Sheets at
February 28, 1998, and August 31, 1997 as well as the
Consolidated Statements of Income, Consolidated Statements of
Changes in Stockholders' Equity and Consolidated Statements of
Cash Flows for the six months ended February 28, 1998 and 1997,
have been prepared in accordance with instructions to Form 10-Q
and do not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation have been included.
April 13, 1998 /s/ Allen E. Dillard
- -------------------- ---------------------
Date Allen E. Dillard
Vice President and Chief
Financial Officer
(Principal Finance and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NICHOLS RESEARCH CORPORATION
April 13, 1998 By: /s/ Allen E. Dillard
- -------------------- ---------------------
Date Allen E. Dillard
Vice President and Chief
Financial Officer
(Principal Finance and
Accounting Officer)
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
NICHOLS RESEARCH CORPORATION
Nichols Research Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law of
the State of Delaware, does hereby certify as follows:
FIRST: That the Board of Directors of said Corporation, at
a meeting duly held, adopted a resolution proposing and declaring
advisable the following amendment to Article IV of the
Certificate of Incorporation of said Corporation:
ARTICLE IV
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.
SECOND: That thereafter, pursuant to resolution of its
Board of Directors, the annual meeting of the stockholders of
said Corporation was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law of
the State of Delaware at which meeting the necessary number of
shares as required by statute were voted in favor of the
aforesaid amendment.
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Nichols Research Corporation, has
caused this Certificate to be signed by Michael J. Mruz, Its
Chief Executive Officer, attested by Patsy L. Hattox, its
Secretary, and its corporate seal hereunto affixed, on this the
4th day of February, 1998.
NICHOLS RESEARCH CORPORATION
By: /s/ Michael J. Mruz
---------------------------
Its Chief Executive Officer
ATTEST:
/s/ Patsy L. Hattox
- ------------------------
Its Secretary
STATE OF ALABAMA
COUNTY OF MADISON
I, the undersigned, a Notary Public in and for said county
and state, do hereby certify that Michael J. Mruz, whose name as
Chief Executive Officer of Nichols Research Corporation, a
Delaware corporation, is signed to the foregoing, and Patsy L.
Hattox, whose name as Secretary of Nichols Research Corporation,
a Delaware corporation, is signed to the foregoing, are known to
me, acknowledged before me on this day, that the facts stated
therein are true, and that being informed of the contents of the
foregoing, they, as such officers and with full authority,
executed the same voluntarily for and as the act and deed of
said Corporation.
Given under my hand this the 4th day of February, 1998.
/s/ Patty R. Baugher
-----------------------------
Notary Public
My commission expires: 8/2/98
--------
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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 (a) the earlier of 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
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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
<PAGE>
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.
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
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 during the entire fiscal year; and
b. is an executive officer of the Company ("key
employee").
<PAGE>
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 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 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
<PAGE>
Committee. The Committee shall select one of its members a 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 Board 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.
<PAGE>
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.
NICHOLS RESEARCH CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
Between
NICHOLS RESEARCH CORPORATION
and
MICHAEL J. MRUZ
Dated: December 16, 1997
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
THIS SUPPLEMENTAL RETIREMENT BENEFIT PLAN (the "Plan") is
made and entered into this 16th day of December, 1997, by and
between NICHOLS RESEARCH CORPORATION, a Delaware corporation,
having its principal place of business at 4040 South Memorial
Parkway, Huntsville, Alabama (the "Company") and MICHAEL J. MRUZ,
residing in the City of Huntsville, Alabama (the "Employee").
W I T N E S S E T H:
The Company adopted a defined contribution plan containing a
cash or deferred arrangement which plan is known as the Nichols
Research Corporation 401(k) Plan (the "401(k) Plan").
Contributions to the 401(k) Plan by and on behalf of participants
are based, in part, on the compensation received by such
participants. Under Section 404(l) of the Internal Revenue Code
of 1986 (the "Code"), the amount of compensation which may be
taken into account is limited to $150,000, plus cost-of-living
increases (the "Section 404 Limit"). The Employee's compensation
is expected to exceed the Section 404 Limit, and accordingly, the
amount contributed to the 401(k) Plan for the Employee's benefit
is limited. The Company desires to supplement the Employee's
retirement benefits by contributing to a nonqualified retirement
plan for the benefit of the Employee.
THEREFORE, to provide the Employee with additional incentive
and to supplement the deferred compensation benefits payable to
the Employee, the Company hereby adopts this Plan and the parties
agree as follows:
1. The Company shall supplement the Company provided
benefits available under the 401(k) Plan by crediting to a book
reserve or deferred compensation account during the period of
Employee's employment by the Company commencing September 1,
1997, a sum equal to seven percent (7%) of the Employee's
compensation for each such fiscal year above the Section 404
Limit. For this purpose, compensation shall mean all taxable
wages reported on Form W-2.
2. The amount credited to the deferred compensation
account as provided in Section 1 above shall be paid to the
trustee under that certain agreement of trust between the Company
and Fidelity Management Trust Company, dated as of the date
hereof and shall be held, administered and disposed in accordance
with such trust. Any appreciation or depreciation with respect
to the funds invested in accordance with the trust shall be
credited or charged to the Employee's deferred compensation
account. The Employee shall assume the risk of diminution in the
value of his deferred compensation account in the event any
invested funds depreciate in value. Nothing contained in this
Plan and no action taken pursuant to the provisions of this Plan
shall create or be construed to create a fiduciary relationship
between the Company and the Employee or any other person. Any
funds which may be invested under the provisions of this Plan
shall continue for all purposes to be part of the general funds
of the Company and no person other than the Company by virtue of
the provisions of this Plan shall have any interest in such
funds. To the extent that any person acquires the right to
receive payments from the Company under this Plan, such rights
shall be no greater than the right of any unsecured general
creditor of the Company. The trust referred to above (and any
amendment thereof) shall conform in all material respects to the
terms and provisions of the model trust described in Revenue
Procedure 92-64 adopted by the Internal Revenue Service. It is
the intention of the parties that the Plan constitute an unfunded
deferred compensation plan for tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of 1974.
3. The benefit to be paid as deferred compensation shall
be as follows:
(a) Commencing one month after termination of employ
ment and for the next 120 months thereafter, the Company shall
pay or cause to be paid to Employee an amount equal to the quo
tient of the fair market value of his deferred compensation
account as of the end of each month divided by 120 less the
number of full months since termination of employment. The
balance of his deferred compensation account shall be paid to the
Employee 120 months after termination of employment. The total
amount payable to the Employee shall be increased or decreased as
the case may be, to reflect the appreciation or depreciation in
value of the deferred compensation account which remains
invested. Notwithstanding the foregoing, the Board of Directors
of the Company shall have the right in its discretion to
accelerate the installment payments due hereunder and may make
such distribution in lump sum or over a shorter period of time
than 120 months as it may find appropriate.
(b) If the Employee should die before the entire
supplemental benefit has been credited, the Company shall be
obligated to pay the balance of the benefits due hereunder. If
the Employee should die prior to termination of his employment or
after termination of his employment but before his entire
deferred compensation account has been paid to him, the unpaid
benefit due hereunder will be paid in a lump sum to a beneficiary
or beneficiaries designated in writing to the Company by the
Employee. If no designation of beneficiary has been made by the
Employee, or if such designation has been revoked, the unpaid
balance shall be paid to the Employee's estate.
(c) The right of the Employee to payments under this
Plan shall be fully vested and nonforfeitable at all times. The
right of Employee or any other person to the payment of deferred
compensation or other benefits under this Plan shall not be
subject in any manner to anticipation, alienation, sale, trans
fer, assignment, pledge, encumbrance, attachment or the garnish
ment by creditors of the Employee or the Employee's beneficiary.
(d) If the Board of Directors shall determine that
the Employee is unable to care for his affairs because of any
physical or mental impairment, any payment due (unless a
prior claim therefore shall have been made by a duly
appointed guardian, conservator or other legal representative)
may be paid to or for the benefit of the Employee in such
manner as the Board may determine. Any such payment shall be
in complete discharge of the liabilities of the Company under
this Plan.
4. Nothing contained herein shall be construed as confer
ring upon the Employee the right to continue in the employ of the
Company as an executive or in any other capacity.
5. Any deferred compensation payable under this Plan shall
not be deemed salary or other compensation to the Employee for
the purpose of computing benefits to which he may be entitled
under any other pension plan or other deferred compensation
arrangement of the Company for the benefit of its employees.
6. The Board of Directors of the Company shall have full
power and authority to interpret, construe and administer this
Plan and the Board's interpretation and construction thereof, and
actions thereunder, including any valuation of the deferred
compensation account, or the amount or recipient of the payment
to be made therefrom, shall be binding and conclusive upon all
persons for all purposes. No member of the Board shall be liable
to any person for any action taken or omitted in connection with
the interpretation and administration of this Plan unless
attributable to willful misconduct. The Company shall indemnify
and hold harmless the members of the Board of Directors against
any liability or threatened liability, including attorneys' fees,
court costs, and damages, related or in any manner connected with
decisions and actions or inactions taken by such Board member in
connection with the Plan, except for such Board member's willful
misconduct.
7. This Plan shall be binding upon and inure to the bene
fit of the Company, successors and assigns, and the Employee, his
heirs, executors, administrator and legal representatives.
8. This Plan shall be construed in accordance with and
governed by the laws of the State of Alabama.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its duly authorized officers and the Employee has
hereunto set his hand and seal as of the date and year first
above written.
NICHOLS RESEARCH CORPORATION
By /s/ Patsy L. Hattox
-----------------------
Its Corporate Secretary
/s/ Michael J. Mruz
------------------------
MICHAEL J. MRUZ, Employee
NICHOLS RESEARCH CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
Between
NICHOLS RESEARCH CORPORATION
and
CHRIS H. HORGEN
Dated: December 16, 1997
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
THIS SUPPLEMENTAL RETIREMENT BENEFIT PLAN (the "Plan") is
made and entered into this 16th day of December, 1997, by and
between NICHOLS RESEARCH CORPORATION, a Delaware corporation,
having its principal place of business at 4040 South Memorial
Parkway, Huntsville, Alabama (the "Company") and CHRIS H. HORGEN,
residing in the City of Huntsville, Alabama (the "Employee").
W I T N E S S E T H:
The Company adopted a defined contribution plan containing a
cash or deferred arrangement which plan is known as the Nichols
Research Corporation 401(k) Plan (the "401(k) Plan").
Contributions to the 401(k) Plan by and on behalf of participants
are based, in part, on the compensation received by such
participants. Under Section 404(l) of the Internal Revenue Code
of 1986 (the "Code"), the amount of compensation which may be
taken into account is limited to $150,000, plus cost-of-living
increases (the "Section 404 Limit"). The Employee's compensation
is expected to exceed the Section 404 Limit, and accordingly, the
amount contributed to the 401(k) Plan for the Employee's benefit
is limited. The Company desires to supplement the Employee's
retirement benefits by contributing to a nonqualified retirement
plan for the benefit of the Employee.
THEREFORE, to provide the Employee with additional incentive
and to supplement the deferred compensation benefits payable to
the Employee, the Company hereby adopts this Plan and the parties
agree as follows:
1. The Company shall supplement the Company provided
benefits available under the 401(k) Plan by crediting to a book
reserve or deferred compensation account during the period of
Employee's employment by the Company commencing September 1,
1997, a sum equal to seven percent (7%) of the Employee's
compensation for each such fiscal year above the Section 404
Limit. For this purpose, compensation shall mean all taxable
wages reported on Form W-2.
2. The amount credited to the deferred compensation
account as provided in Section 1 above shall be paid to the
trustee under that certain agreement of trust between the Company
and Fidelity Management Trust Company, dated as of the date
hereof and shall be held, administered and disposed in accordance
with such trust. Any appreciation or depreciation with respect
to the funds invested in accordance with the trust shall be
credited or charged to the Employee's deferred compensation
account. The Employee shall assume the risk of diminution in the
value of his deferred compensation account in the event any
invested funds depreciate in value. Nothing contained in this
Plan and no action taken pursuant to the provisions of this Plan
shall create or be construed to create a fiduciary relationship
between the Company and the Employee or any other person. Any
funds which may be invested under the provisions of this Plan
shall continue for all purposes to be part of the general funds
of the Company and no person other than the Company by virtue of
the provisions of this Plan shall have any interest in such
funds. To the extent that any person acquires the right to
receive payments from the Company under this Plan, such rights
shall be no greater than the right of any unsecured general
creditor of the Company. The trust referred to above (and any
amendment thereof) shall conform in all material respects to the
terms and provisions of the model trust described in Revenue
Procedure 92-64 adopted by the Internal Revenue Service. It is
the intention of the parties that the Plan constitute an unfunded
deferred compensation plan for tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of 1974.
3. The benefit to be paid as deferred compensation shall
be as follows:
(a) Commencing one month after termination of employ
ment and for the next 120 months thereafter, the Company shall
pay or cause to be paid to Employee an amount equal to the quo
tient of the fair market value of his deferred compensation
account as of the end of each month divided by 120 less the
number of full months since termination of employment. The
balance of his deferred compensation account shall be paid to the
Employee 120 months after termination of employment. The total
amount payable to the Employee shall be increased or decreased as
the case may be, to reflect the appreciation or depreciation in
value of the deferred compensation account which remains
invested. Notwithstanding the foregoing, the Board of Directors
of the Company shall have the right in its discretion to
accelerate the installment payments due hereunder and may make
such distribution in lump sum or over a shorter period of time
than 120 months as it may find appropriate.
(b) If the Employee should die before the entire
supplemental benefit has been credited, the Company shall be
obligated to pay the balance of the benefits due hereunder. If
the Employee should die prior to termination of his employment or
after termination of his employment but before his entire
deferred compensation account has been paid to him, the unpaid
benefit due hereunder will be paid in a lump sum to a beneficiary
or beneficiaries designated in writing to the Company by the
Employee. If no designation of beneficiary has been made by the
Employee, or if such designation has been revoked, the unpaid
balance shall be paid to the Employee's estate.
(c) The right of the Employee to payments under this
Plan shall be fully vested and nonforfeitable at all times. The
right of Employee or any other person to the payment of deferred
compensation or other benefits under this Plan shall not be
subject in any manner to anticipation, alienation, sale, trans
fer, assignment, pledge, encumbrance, attachment or the garnish
ment by creditors of the Employee or the Employee's beneficiary.
(d) If the Board of Directors shall determine that the
Employee is unable to care for his affairs because of any physical
or mental impairment, any payment due (unless a prior claim
therefore shall have been made by a duly appointed guardian,
conservator or other legal representative) may be paid to or for
the benefit of the Employee in such manner as the Board may
determine. Any such payment shall be in complete discharge of
the liabilities of the Company under this Plan.
4. Nothing contained herein shall be construed as confer
ring upon the Employee the right to continue in the employ of the
Company as an executive or in any other capacity.
5. Any deferred compensation payable under this Plan shall
not be deemed salary or other compensation to the Employee for
the purpose of computing benefits to which he may be entitled
under any other pension plan or other deferred compensation
arrangement of the Company for the benefit of its employees.
6. The Board of Directors of the Company shall have full
power and authority to interpret, construe and administer this
Plan and the Board's interpretation and construction thereof, and
actions thereunder, including any valuation of the deferred
compensation account, or the amount or recipient of the payment
to be made therefrom, shall be binding and conclusive upon all
persons for all purposes. No member of the Board shall be liable
to any person for any action taken or omitted in connection with
the interpretation and administration of this Plan unless
attributable to willful misconduct. The Company shall indemnify
and hold harmless the members of the Board of Directors against
any liability or threatened liability, including attorneys' fees,
court costs, and damages, related or in any manner connected with
decisions and actions or inactions taken by such Board member in
connection with the Plan, except for such Board member's willful
misconduct.
7. This Plan shall be binding upon and inure to the bene
fit of the Company, successors and assigns, and the Employee, his
heirs, executors, administrator and legal representatives.
8. This Plan shall be construed in accordance with and
governed by the laws of the State of Alabama.
IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its duly authorized officers and the Employee has
hereunto set his hand and seal as of the date and year first
above written.
NICHOLS RESEARCH CORPORATION
By /s/ Patsy L. Hattox
----------------------------
Its Corporate Secretary
/s/ Chris H. Horgen
----------------------------
CHRIS H. HORGEN, Employee
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 24,113
<SECURITIES> 0
<RECEIVABLES> 87,491
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 117,424
<PP&E> 42,502
<DEPRECIATION> 21,334
<TOTAL-ASSETS> 202,805
<CURRENT-LIABILITIES> 42,574
<BONDS> 3,533
0
0
<COMMON> 133
<OTHER-SE> 153,948
<TOTAL-LIABILITY-AND-EQUITY> 202,805
<SALES> 171,481
<TOTAL-REVENUES> 171,481
<CGS> 160,503
<TOTAL-COSTS> 160,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 11,168
<INCOME-TAX> 4,244
<INCOME-CONTINUING> 6,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,924
<EPS-PRIMARY> .53
<EPS-DILUTED> .51
</TABLE>
